Axis Manufacturing Company, Inc. (AXCI), a very small company in terms of market capitalization, has total assets of €3,

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Axis Manufacturing Company, Inc. (AXCI), a very small company in
terms of market capitalization, has total assets of €3,000,000
financed by 40% with debt capital. The cost of debt is 7.5% before
taxes and cost of equity is 12.5%. The company has earnings before
interest and taxes (EBIT) of €300,000 and a tax rate of 30%. Assume
that that initially AXCI equity is selling for a book value or
€3,000,000 with 150,000 shares outstanding.
Because AXCI’s residual income is negative, therefore its stock
price must fall from €12 per share to ______ per share.
a. €7.90
b. €7.84
c €7.00
d. €7.20
e. €8.34
The charges for equity capital and debt capital for AXCI’s
residual are respectively equal to _______.
a. €225,000 and €288,000
b. €288,000 and €225,000
c €180,000 and €243,000
d. €180,000 and €225,000
e. €100,000 and €100,000