Question
The Simon Company (SIMON) currently has $300,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before
The Simon Company (SIMON) currently has $300,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $150,000, and it is a zero growth company. SIMON's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $90.00.Now assume that SIMON is considering changing from its original capital structure to a new capital structure with 50% debt and 50% equity. If it makes this change, its resulting market value would be $1,230,000. What would be its new stock price per share?
| A. | $87 | |
| B. | $58 | |
| C. | $62 | |
| D. | $93 |
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Fundamentals of Investments Valuation and Management
Authors: Bradford D. Jordan, Thomas W. Miller
5th edition
978-007728329, 9780073382357, 0077283295, 73382353, 978-0077283292
