The Rumpel Felt Co. was all equity financed. It recently borrowed money and used the funds to repurchase shares. The stock price rose as a result. Which of the following explains the increase in stock price?
I. The tax shields generated by the new debt
II. A reduction in agency costs due to the interest on the debt
III. A generous premium included in the repurchase price
A) I only
B) II only
C) III only
D) I and II
E) I and III
D
Business
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