Question

Dabney electronics currently has no debt. its operating income is $20 million and its tax rate is 40%. it pays out all of its net income as dividends and has a zero growth rate. the current stock price is $40 per share, and it has 2.5 million shares of stock outstanding. if it moves to a capital structure that has 40% debt and 60% equity optional final (based on market values, its investment bankers believe its weighted average cost of capital would be 10%. what would its stock pric

Answer 1

If Dabney electronics currently has no debt and its operating income is $20 million and its tax rate is 40%, thus it pays out all of its net income as dividends and has a zero growth rate, then its stock price is $48.