Elliott Enterprises (EE) is an all-equity firm, which pays out 100% of earnings to its shareholders. As an established firm, its earnings and obligations are considered perpetual. In the upcoming calendar year, EBIT is projected to be $7,000,000. Tax rate is 32%.
A). If the cost of equity capital is 9% and there are 500,000 shareholders calculate the price per share of EE stock.
B). 20,000 bonds with 6% coupon will be sold to raise funds to repurchase equity. What will be the new value of EE?
C).Recalculate the cost of equity capital of EE.