Big blue banana is a clothing retailer with a current share, Ask an Expert

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Big Blue Banana (BBB) is a clothing retailer with a current share price of $10.00 and with 25 million shares outstanding. Suppose that Big Blue Banana announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares.

Suppose that BBB pays corporate taxes of 35% and that shareholders expects the change in debt to be permanent. Assuming that capital markets are perfect except for the existence of corporate taxes, the share price for BBB after this announcement is closest to:

A. $8.60
B. $10.00
C. $11.40
D. $10.85

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Corporate Finance, Finance

Category:- Corporate Finance
Reference No.:- M9221641

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