VanMannen Foundations, Inc. (VF)VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below.
EBIT =$80,000
Growth =0%
Orig cost of equity, rs =10.0%
No. of shares =10,000 Price per share = $60.00Tax rate =25%
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Refer to the data for VanMannen Foundations, Inc. (VF). Now assume that VF is considering changing from its original zero debt capital structure to a new capital structure with even more debt. This results in changes in the cost of debt and equity, and thus to a new WACC and a new value of operations. Assume VF raises the amount of new debt indicated below and uses the funds to purchase and hold T-bills until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase?
Debt/Value =40%
Value of new debt =$280,702
Equity/Value =60%
New WACC =8.55%
A. $66.67
B. $70.18
C. $73.68
D. $77.37
E. $81.24
Answer: B
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