A) Calculate the current price of the firm's stock.

B) How many shares can the firm repurchase?

 

Ramsey Corp. currently has an 12% weighted average cost of capital (WACC) and no debt. The firm just paid a $3.00 dividend per share and maintains a constant 5% growth rate in its dividends. There are 15 million shares outstanding and the firm's tax rate is 25%. You are analyzing the impact of recapitalizing the firm. Specifically, the firm is looking at issuing 300,000 bonds (note: this is the number of bonds) and using the proceeds to repurchase stock. The bonds would be 15 year, $1,000 par value bonds with an 8 percent coupon rate, paid semiannually. The yield to maturity on similar bonds is approximately 7.44%. Assume you are in the Modigliani and Miller (M&M) framework and those assumptions hold.