Memories Inc currently has 25 million shares outstanding with a current share price of $10.00 per share. Memories intends to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares. Suppose that Memories has a corporate tax rate of 35% and shareholders expect the change in debt to be permanent. Assuming that capital markets are perfect except for the existence of corporate taxes, the number of shares outstanding after the share repurchase is closest to:

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
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Memories Inc currently has 25 million shares outstanding
with a current share price of $10.00 per share. Memories
intends to lower its corporate taxes by borrowing $100
million and using the proceeds to repurchase shares. Suppose
that Memories has a corporate tax rate of 35% and
shareholders expect the change in debt to be permanent.
Assuming that capital markets are perfect except for the
existence of corporate taxes, the number of shares
outstanding after the share repurchase is closest to:
16,228,070
25,000,000
O 20,070,228
O 12,688,870
None of the answer choices is correct
Transcribed Image Text:Memories Inc currently has 25 million shares outstanding with a current share price of $10.00 per share. Memories intends to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares. Suppose that Memories has a corporate tax rate of 35% and shareholders expect the change in debt to be permanent. Assuming that capital markets are perfect except for the existence of corporate taxes, the number of shares outstanding after the share repurchase is closest to: 16,228,070 25,000,000 O 20,070,228 O 12,688,870 None of the answer choices is correct
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