Question
The Hifalutin Co. has perpetual EBIT of $3,000. It has no debt in its capital structure, and its cost of equity is 15%. The corporate
The Hifalutin Co. has perpetual EBIT of $3,000. It has no debt in its capital structure, and its cost of equity is 15%. The corporate tax rate is 40%. There are 300 shares outstanding. Hifalutin has announced that it will borrow $3,750 in perpetual debt at 8% and use the proceeds to buy up stock. What will the stock price now be after the recapitalization?
A. $35. B. $50. C. $45. D. $40.
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Intermediate Financial Management
Authors: Eugene F. Brigham, Phillip R. Daves
11th edition
978-1111530266
