A. 540 B. 560 C. 580 D. 600 E. 620

An unlevered firm will be worth either $5000 (probability is 0.1) or $15000 (probability is 0.9) in one year. The firm has the following capital structure: Stocks: 1000 outstanding shares, cost of capital is Equity 7%. Debt N/A The firm plans to repurchase some of its existing shares by issuing one-year bonds at 5%. The total amount collected from the issuance of bonds will be $6000. You are also given that the bankruptcy costs are $500 and the present value of financial distress costs is calculated at the debt cost of capital. Determine the number of outstanding shares after the repurchase