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Calculate the value of the equity after restructuring

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Problem 1: The Dance Studio is currently an all-equity firm that has 22,000 shares of stock outstanding with a market price of $25 a share. The current cost of equity is 12 percent. The company tax rate is 30 percent. The firm would like to restructure its capital by adding $225,000 of debt with a coupon rate of 6.25 percent and repurchase its 9000 shares. The debt will sell at par. Assuming MM1963 world with tax, calculate the value of the equity after restructuring?

Select one:

a. $325,000
b. $395,000
c. $550,000
d. $775,000
e. None of the above

Reference no: EM132679195

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