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Taco Salad Manufacturing, Inc., plans to announce that it will issue $2.03 million of perpetual debt and use the proceeds to repurchase common stock. The
Taco Salad Manufacturing, Inc., plans to announce that it will issue $2.03 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 5 percent. The company is currently all-equity and worth $6.50 million with 186,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pretax earnings of $1.27 million are expected to remain constant in perpetuity. The tax rate is 21 percent. e-1. How many shares will the company repurchase as a result of the debt issue? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) e-2. How many shares of common stock will remain after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) g. What is the required return on the company's equity after the restructuring? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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