Levy Corp. is an unlevered firm worth $507,000 (market value). There are 14,000 shares of stock outstanding. The company just announced that, to change the capital structure, it will repurchase $22,400 worth of stock with borrowed fund in six months. The interest rate for the borrowing is 6%. The tax rate for the firm is 20%. If the stock market is efficient, what is the cost for repurchasing each share of the stock?
Levy Corp. is an unlevered firm worth $507,000 (market value). There are 14,000 shares of stock outstanding. The company just announced that, to change the capital structure, it will repurchase $22,400 worth of stock with borrowed fund in six months. The interest rate for the borrowing is 6%. The tax rate for the firm is 20%. If the stock market is efficient, what is the cost for repurchasing each share of the stock?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Levy Corp. is an unlevered firm worth $507,000 (market value). There are 14,000 shares of stock outstanding. The company just announced that, to change the capital
structure, it will repurchase $22,400 worth of stock with borrowed fund in six months. The interest rate for the borrowing is 6%. The tax rate for the firm is 20%. If the
stock market is efficient, what is the cost for repurchasing each share of the stock?
O $36.00
O $51.21
O $36.53
O $53.22
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