Problempowell plastics inc pp currently has zero debt its, Ask an Expert

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Powell Plastics, Inc. (PP) currently has zero debt. Its earnings before interest and taxes (EBIT) are $80,000, and it is a zero growth company. PP's current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. Refer to Multi-Part 15-1. Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.4% and a new value of operations of $510,638. Assume PP raises $178,723 in new debt and purchases T-bills to hold until it makes the stock repurchase. PP then sells the T-bills and uses the proceeds to repurchase stock.

Required:

Question: How many shares remain after the repurchase, and what is the stock price per share immediately after the repurchase?

Note: Be sure to show how you arrived at your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170481

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