1) Erica has decided to change her investment strategy and wants to sell her shares in a closely held, all equity firm. The other shareholders have agreed to have the firm borrow $480,000 to purchase Erica's 12,000 shares of stock at the current market value. The total number of shares outstanding is 300,000. What will be the new price per share after the repurchase? Ignore taxes.

A)$38.00

B)$39.00

C)$40.00

D)$41.00

E)$42.00

2)Biogen is an all equity firm and has a cost of capital of 8.2 percent. The firm is considering switching to a debt-equity ratio of 1.80 with a pretax cost of debt of 6.4 percent. What will the firm's cost of equity be if the firm makes the switch? The tax rate is 25%.

A) 9.88%

B)10.20%

C)10.42%

D)10.63%

E)10.87%

3) Converse Company has debt with both a face and a market value of $1,760,000. This debt has a coupon rate of 6 percent and pays interest annually. The expected earnings before interest and taxes are $1,200,000, the tax rate is 25 percent, and the unlevered cost of capital is 10.4 percent. What is the firm's cost of equity?

A)11.19%

B)10.93%

C)10.72%

D)11.36%

E)11.58%

4)Eaton Company has a cost of equity of 11.6 percent and a pretax cost of debt of 7.3 percent. The debt-equity ratio is 1.80 and the tax rate is 25 percent. What is the unlevered cost of capital?

A)8.88%

B)9.42%

C)8.67%

D)9.13%

E)8.53%

5)Harpoon is an unlevered firm. It has expected earnings of $570,000 and a market value of equity of $5,020,000. The firm is planning to issue $2,560,000 of debt at 6.4 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?

A)15.45%

B)15.71%

C)15.90%

D)16.28%

E)16.51%

6)Rockport is an unlevered firm with a total market value of $5,700,000 with 300,000 shares of stock outstanding. The firm has expected EBIT of $420,000 if the economy is normal and $680,000 if the economy booms. The firm is considering a $2,400,000 bond issue with an attached interest rate of 6.2 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms?

A)$3.38

B)$3.29

C)$3.06

D)$2.82

E)$2.67

7) Steinway has expected earnings before interest and taxes of $1,360,000, an unlevered cost of capital of 9.8 percent, and a tax rate of 25 percent. The company has $1,200,000 of debt that carries a 6.4 percent coupon. The debt is selling at par value. Assume the firm maintains this debt amount forever. What is the interest tax shield of the firm in a given year? What is the value of the firm?

A)$18,900 and $10,475,216

B)$18,600 and $10,475,216

C)$18,600 and $11,328,410

D)$19,200 and $11,328,410

E)$19,200 and $10,708,163

8)Yankee Company is currently an all equity firm. Its current cost of equity is 10.4 percent and the tax rate is 25 percent. The firm has 1,700,000 shares of stock outstanding with a market price of $46 a share. The firm is considering capital restructuring that allows $12 million of debt with a coupon rate of 6.4 percent. The debt will be sold at par value and the proceeds will be used to repurchase shares. What is the value per share after the recapitalization? (Hint: You need to determine the total value of equity after recapitalization that accounts for the PV of interest tax shield and the number of shares outstanding after repurchased)

A)$49.27

B)$48.08

C)$47.15

D)$46.50

E)$50.33