Answer to Question #88384 in Finance for kaelie

Question #88384
Tartan Industries currently has total capital equal to $9 million, has zero debt, is in the 40% federal-plus-state tax bracket, has a net income of $2 million, and distributes 40% of its earnings as dividends. Net income is expected to grow at a constant rate of 4% per year, 380,000 shares of stock are outstanding, and the current WACC is 13.70%.

The company is considering a recapitalization where it will issue $2 million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the recapitalization, its before-tax cost of debt will be 10% and its cost of equity will rise to 14.5%.
What is the stock's current price per share (before the recapitalization?

Assuming that the company maintains the same payout ratio, what will be its stock price following the recapitalization? Assume that shares are repurchased at the price calculated in part a.
1
Expert's answer
2019-04-25T09:50:03-0400
Dear kaelie, your question requires a lot of work, which neither of our experts is ready to perform for free. We advise you to convert it to a fully qualified order and we will try to help you. Please click the link below to proceed: Submit order

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