Market value = $3,000,000

EBIT = $500,000

Cost of equity rs = 10%

Current stock price P0 = $15 Current shares outstanding n0 = 200,000

Tax rate T = 40%

The firm is considering issuing debt and simultaneously repurchasing some of its stock. If the new capital structure has a proportion of debt wd= 30%, its cost of equity, rs, will increase to 11% to reflect the increased risk. The cost of debt in that case will be rd = 7%. La Paire is a no growth firm (g = 0). Earnings are expected to be constant over time. What would be the new stock price after the change in the capital structure?

a $94.25

b $45.45

c $30.01

d $16.74