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Midco Industries Co. wants to boost its stock price. The company currently has 20 million shares outstanding with a market price of $20 per share and...

Midco Industries Co. wants to boost its stock price. The company currently has 20 million shares outstanding with a market price of $20 per share and no debt. Midco has had consistently stable earnings, and pays a 30% tax rate. Management plans to borrow: 1) $100 million loan on a permanent basis (the cost of debt is 10%) 2) $100 million three-year term loan (the cost of debt is 5%). They will use the borrowed funds ($100 million + $100 million) to repurchase outstanding shares. Q: Assume that the company is able to execute the leveraged recapitalization secretly, and investors only know after its completion. What will be the stock price after the recapitalization?

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