What is the new stock price after recapitalization

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Question 1: ABC Corporation expects its EBIT to be $68,000 every year forever. The firm currently has no debt, and the cost of equity is 16%. There are 10,000 shares outstanding. The firm can borrow at 9%. If the tax rate is 30%, what is the value of the firm? (Hint: all after-tax earnings will be distributed as dividends to stockholders).

Question 2: If the firm borrows $60,000 to repurchase the outstanding shares, what will be the value of the firm, cost of equity, and WACC after recapitalization?

Question 3: What is the new stock price after recapitalization?

Reference no: EM133326533

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