Question

BBB is a clothing retailer with a current share price of $10.00 and with 25 million shares outstanding. Suppose that BBB announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares. Suppose that BBB pays corporate taxes of 35% and shareholders expect the change in debt to be permanent. Provided that the capital markets are perfect except for the existence of corporate taxes and there are no significant financial distress costs incurred by BBB after issuing debt, the number of shares outstanding after the share repurchase is closest to: 12,688,870 25,000,000 16,228,070 20,070,228