Question: Gap is a clothing retail store with a current share price of $10.00 and with 25 million shares outstanding. Suppose that GAP announces plans to

Gap is a clothing retail store with a current share price of $10.00 and with 25 million shares outstanding. Suppose that GAP announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares. Suppose that GAP pays corporate taxes of 20% and that shareholders expect the change in debt to be permanent. Assuming capital markets are perfect except for the existence of corporate taxes, the share price for GAP after this announcement is closest to:

A. 9

b. 10

C. 10.80

D. 11.40

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