Problem $14\mathrm{.}09($Recapitalization$)$

Tartan Industries currently has total capital equal to $$8$ million, has zero debt, is in the $25\%$ federal$-$plus$-$state tax bracket, has a net income of $$2$ million, and

distributes $40\%$ of its earnings as dividends. Net income is expected to grow at a constant rate of $4\%$ per year, $290,000$ shares of stock are outstanding, and the

current WACC is $12\mathrm{.}20\%.$

The company is considering a recapitalization where it will issue $$4$ million in debt and use the proceeds to repurchase stors

that if the company goes through with the recapitalization, its before$-$tax cost of debt will be $10\%$ and its cost of equity will rise to $16\mathrm{.}5\%.$

a$.$ What is the stock's current price per share $($before the recapitalization$)?$ Do not round intermediate calculations. Round your answer to the nearest cent.

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b$.$ Assuming that the company maintains the same payout ratio, what will be its stock price following the recapitalization? Assume that shares are

repurchased at the price calculated in part a$.$ Do not round intermediate calculations. Round your answer to the nearest cent.

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