The Anderson Company Ltd. (ACL) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. ACL'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 $60.00.
Now, assume that ACL is considering changing from its original capital structure to a new capital structure that results in an increased cost of equity to 9.5%. The resulting capital structure would have a $402,684.60 total market value of equity and a $604,026.80 market value of debt. How many shares would ACL repurchase in the recapitalization?
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