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Assume Exhale is fairly valued at $95 per share. The company is now considering a...

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Accounting

Assume Exhale is fairly valued at $95 per share. The company is now considering a recapitalization in which it would use its excess cash ($750,000), currently earning interest of 2.0%,
and issue an additional $1.0 million of debt at 5%, to repurchase stock or issue a dividend to shareholders. The debt would stay on the books in perpetuity. The tax rate is 20%.
Remember, Exhale currently has 800,000 shares outstanding.

a. If Exhale were to buy back stock, how many shares would it be able to buy back and at what stock price?
b. If Exhale were to issue a dividend, what would be the amount of the dividend per share, the stock price and the resulting dividend yield?

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