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The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual...

The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.

Refer to the data for the Anson Jackson Court Company (AJC). Now assume that AJC is considering changing from its original capital structure to a new capital structure with 50% debt and 50% equity. If it makes this change, its resulting market value would be $820,000. What would be its new stock price per share?

a. $58
b. $60
c. $62
d. $59
e. $61
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Answer #1

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Home nert Page Layout Formulas Data Review View dd-Ins s Cut aCopy Σ AutoSum ー E ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Edting J143 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 4CALCULATOR LOAN OPTIONS v, fv, annuity CAP STRU VALUE value of fimvalue of equity +value of debt (60 x 10000) 200000 800000 if company makes 50% debt & 50% equity capital structure, the market value will increase to 820000 that is value of equity 820000 -200000 (value of debt) 620000 so market price of equity share will be 620000/10000 62 ANSWER C: $62 BOX DILUTION DOLLAR COST AVGMORTGAGE EXPO Sheeti Sheet2 ShelI 01:24 10-01-2019

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