Refer to Exhibit 15.4.Now assume that AJC is considering changing from its original capital structure to a new capital structure that results in a stock price of $64 per share.The resulting capital structure would have a $336, 000 total market value of equity and a $504, 000 market value of debt.How many shares would AJC repurchase in the recapitalization?

Question

Quizplus · Accepted Answer

First, find the number of shares remaining:
n = S/P = $336, 000/$64 = 5, 250.The number of repurchased shares is the original number of shares minus the resulting number of shares:
# repurchased = 10, 000 - 5, 250 = 4, 750.Alternatively, number of shares repurchased is equal to the debt used to repurchase stock divided by the price per share:
# repurchased = ($504, 000 - $200, 000)/$64 = 4, 750.