Question: Using Excel (if applicable), Wells Fargo currently finances with 20% debt but its new CFO is considering changing the capital structure so as to increase

Using Excel (if applicable),

Wells Fargo currently finances with 20% debt but its new CFO is considering changing the capital structure so as to increase debt to 55% by issuing additional bonds and using the proceeds to repurchase and retire common shares. Management has determined this new increase in debt will achieve optimal capital structure given the current state of the economy. The company has a dividend policy such that it does not subscribe to a growth rate and instead pays all of its earnings out to shareholders. If the new capital structure adjustment is implemented, which drives EPS estimates to $4.75 per share, what should the firms new stock price be? Assuming this is the optimal capital structure, what is true about the new stock price and Wells Fargo's WACC?

Risk-free rate	2.00%	Tax rate, T	20%
Return on the market portfolio	10.00%	Current wd	25%
Current beta	1.05	Target wd	55%
New EPS	$4.75

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