1. Pennewell Publishing Inc. (PP)

   Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $80,000. PP's current cost of equity is 10%, and its tax rate is 25%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00.

   Refer to the data for Pennewell Publishing Inc. (PP). Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.125% and a new value of operations of $657,534. Assume PP raises $230,137 in new debt and purchases T-bills to hold until it makes the stock repurchase. PP then sells the T-bills and uses the proceeds to repurchase stock. How many shares remain after the repurchase, and what is the stock price per share immediately after the repurchase?

   Remaining Shares; P Post

   	a.	6,649; $63.48
   	b.	6,500; $65.75
   	c.	7,000; $74.26
   	d.	6,959; $58.03
   	e.	7,500; $86.18