Tapley dental supplies inc. is in a stable, no-growth situation. its $1,000,000 of debt consists of perpetuities that have a 10% coupon and sell at par. tapley's ebit is $500,000, its cost of equity is 15%, it has 100,000 shares outstanding, all earnings are paid out as dividends, and its federal-plus-state tax rate is 40%. tapley could borrow an additional $500,000 at an interest rate of 13% without having to retire the original debt, and it would use the proceeds to repurchase stock at the current price, not at the new equilibrium price. the increased risk from the additional leverage will raise the cost of equity to 17%. if tapley does recapitalize, what will be the new stock price?
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