GARLAND INDUSTRIES $-$ PART I

Garland Industries currently has total capital equal to $$10$ million, has zero debt, is in the $25\%$ tax bracket, has a net

income of $$3$ million, pays an annual dividend, and has a policy of retaining $40\%$ of its earnings. Net income is

expected to grow at $5\%$ per year, $450,000$ shares of stock are outstanding, the current WACC is $14\%.$

The company is considering a recapitalization where it will issue $$3$ million in debt and use the proceeds to repurchase

stock. Investment bankers have estimated that if the company goes through with the recapitalization, its before$-$tax cost

of debt will be $12\%$ and its cost of equity will rise to $17\mathrm{.}5\%.$

What is the stock's current price per share $($before the recapitalization$)?$

None of the other answers

$$32\mathrm{.}31$

$$31\mathrm{.}11$

$$46\mathrm{.}67$

$$20\mathrm{.}51$