Pennewell Publishing Inc. (PP) Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero...

90.2K

Verified Solution

Question

Finance

Pennewell Publishing Inc. (PP)
Pennewell Publishing Inc. (PP) is a zero growth company. Itcurrently has zero debt and its earnings before interest and taxes(EBIT) are $80,000. PP's current cost of equity is 10%, and its taxrate is 25%. The firm has 10,000 shares of common stock outstandingselling at a price per share of $48.00.

Refer to the data for Pennewell Publishing Inc. (PP). Assume thatPP is considering changing from its original capital structure to anew capital structure with 35% debt and 65% equity. This results ina weighted average cost of capital equal to 9.125% and a new valueof operations of $657,534. Assume PP raises $230,137 in new debtand purchases T-bills to hold until it makes the stock repurchase.PP then sells the T-bills and uses the proceeds to repurchasestock. How many shares remain after the repurchase, and what is thestock price per share immediately after the repurchase?

Remaining Shares; P Post
a. 7,000; $74.26
b. 6,500; $65.75
c. 7,500; $86.18
d. 6,959; $58.03
e. 6,649; $63.48

Answer & Explanation Solved by verified expert

4.3 Ratings (954 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Pennewell Publishing Inc. (PP)Pennewell Publishing Inc. (PP) is a zero growth company. Itcurrently has zero debt and its earnings before interest and taxes(EBIT) are $80,000. PP's current cost of equity is 10%, and its taxrate is 25%. The firm has 10,000 shares of common stock outstandingselling at a price per share of $48.00.Refer to the data for Pennewell Publishing Inc. (PP). Assume thatPP is considering changing from its original capital structure to anew capital structure with 35% debt and 65% equity. This results ina weighted average cost of capital equal to 9.125% and a new valueof operations of $657,534. Assume PP raises $230,137 in new debtand purchases T-bills to hold until it makes the stock repurchase.PP then sells the T-bills and uses the proceeds to repurchasestock. How many shares remain after the repurchase, and what is thestock price per share immediately after the repurchase?Remaining Shares; P Posta. 7,000; $74.26b. 6,500; $65.75c. 7,500; $86.18d. 6,959; $58.03e. 6,649; $63.48