Simon repurchase in the recapitalization

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The Simon Company (SIMON) currently has $300,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $150,000, and it is a zero growth company. SIMON's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $90.00.Now assume that SIMON is considering changing from its original capital structure to a new capital structure that results in a stock price of $96 per share. The resulting capital structure would have a $504,000 total market value of equity and a $756,000 market value of debt. How many shares would SIMON repurchase in the recapitalization?

Reference no: EM132200125

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