The Following Information Applies to Shilling Medical Supplies

Multiple Choice

The following information applies to Shilling Medical Supplies:
The company is considering a recapitalization where it would issue $348,000 worth of new debt and use the proceeds to buy back $348,000 worth of common stock. The buyback will be undertaken at the pre-recapitalization share price ($17.40) . The recapitalization is not expected to have an effect on operating income or the tax rate. After the recapitalization, the company's interest expense will be $50,000.
Assume that the recapitalization has no effect on the company's price earnings (P/E) ratio. What is the expected price of the company's stock following the recapitalization?

A) $15.00
B) $16.25
C) $17.40
D) $18.00
E) $20.88