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The La Paire Company has currently no debt and its financial data is given below: Market value = $3,000,000 EBIT = $500,000 Cost of equity
The La Paire Company has currently no debt and its financial data is given below: Market value = $3,000,000 EBIT = $500,000 Cost of equity rs = 10% Current stock price Po = $15 Current shares outstanding no = 200,000 Tax rate T = 40% The firm is considering issuing debt and simultaneously repurchasing some of its stock. If the new capital structure has a proportion of debt wa= 30%, its cost of equity, rs, will increase to 11% to reflect the increased risk. The cost of debt in that case will be rd = 7%. La Paire is a no growth form (g = 0). Earnings are expected to be constant over time. What would be the new stock price after the change in the capital structure? $16.74 None of the other answers is true. $94.25 $45.45 $30.01
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