XYZ Company is currently 100% equity and zero growth. The firm has an annual EBIT of $1,200,000, its current cost of equity is 7%, and the corporate tax rate is 25% (assume personal taxes are zero). XYZ currently has 200,000 shares outstanding. The firm's CFO has decided to recapitalize by issuing $5,000,000 in debt that carries an interest rate of 5% and repurchasing shares. Assuming that the assumptions of the Modigilani and Miller models hold, what is the expected change in the value per share due to the recapitalization? Group of answer choices $10.23 58.82 $11.72 59.37

XYZ Company is currently 100% equity and zero growth. The firm has an annual EBIT of $1,200,000, its current cost of equity is 7%, and the corporate tax rate is 25% (assume personal taxes are zero). XYZ currently has 200,000 shares outstanding. The firm's CFO has decided to recapitalize by issuing $5,000,000 in debt that carries an interest rate of 5% and repurchasing shares. Assuming that the assumptions of the Modigilani and Miller models hold, what is the expected change in the value per share due to the recapitalization? Group of answer choices $10.23 58.82 $11.72 59.37

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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