Anson Jackson Court Company (AJC) The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company AJC's current cost of equity is 8 8 , and its tax rate is 40 The firm has 10,000 shares of common stock outstanding selling at a price per share of $60 00 Refer to the data for the Anson Jackson Court Company (AJC) 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 a 5,250 b 4,500 c 5,000 d 4,750 e 4,250

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 29, 2024

Anson Jackson Court Company (AJC)

The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.

Refer to the data for the Anson Jackson Court Company (AJC). 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?

a.
5,250

b.
4,500

c.
5,000

d.
4,750

e.
4,250