Question: 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
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 = | $60.00 |
| Tax rate = | 25% |
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% |
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