EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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General Accounting
Transcribed Image Text:Big Blue Banana (BBB) is a clothing retailer with
a current share price of $20 and with 30 million
shares outstanding. Suppose BBB announces a plan to
lower its corporate taxes by borrowing $81 million
and using the proceeds to repurchase shares.
Suppose BBB pays corporate taxes of 35% and that
shareholders expect the change in debt to be
permanent. Assuming that
that capital markets are
perfect except for the
the existence of corporate
taxes, what is the share price of BBB after this
announcement?
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