(The following data are required for the next three problems.)

The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJCs current cost of equity is 10 percent, and its tax rate is 40 percent. The firm has 10,000 shares of common stock outstanding.

20. What is AJCs current total market value?

a. $500,000

b. $528,000

c. $700,000

d. $728,000

e. $800,000

21. What is AJCs current stock price?

a. $50.00

b. $52.00

c. $52.80

d. $59.27

e. $60.36

22. Independent of # 20 and 21 above, the firm is considering recalling the 6 percent debt and issuing $400,000 of new debt. The new funds would be used to replace the old debt and to repurchase stock. It is estimated that the increase in riskiness resulting from the leverage increase would cause the required rate of return on debt to rise to 7 percent, while the required rate of return on equity would increase to 11 percent. If this plan were carried out, what would be AJCs new stock price, based on the 10,000 shares outstanding after the buyback.

a. $50.00

b. $52.00

c. $52.80

d. $59.27

e. $60.36

PLEASE SHOW IN EXCEL