1. Young plc's finance director is considering a change in the company's financing policy. The company has always relied entirely on equity finance but it is now assessing the likely implications of a share buy-back to be financed by a bond issue. The company's shares are trading at $6.00 and there are 20 million shares outstanding. It is planned to buy back 5 million shares at a cost of $30 million and issue bonds of the same value at 8 per cent. The company's profit before interest and tax is expected to remain at $32 million indefinitely into the future and the tax rate is 40 per cent a) Determine the company's cost of capital prior to the proposed re-structuring.[S POINTS b) Consider the implications of the proposed re-structuring for the expected earnings per share and identify the range of EBIT over which the EPS will be higher following the re-structuring. [20 POINTS c) Determine the value of the company and the value of its remaining equity after the re structuring. [5 POINTS d) Determine the cost of equity and WACC following re-structuring. (15 POINTS) 1. Young plc's finance director is considering a change in the company's financing policy. The company has always relied entirely on equity finance but it is now assessing the likely implications of a share buy-back to be financed by a bond issue. The company's shares are trading at $6.00 and there are 20 million shares outstanding. It is planned to buy back 5 million shares at a cost of $30 million and issue bonds of the same value at 8 per cent. The company's profit before interest and tax is expected to remain at $32 million indefinitely into the future and the tax rate is 40 per cent a) Determine the company's cost of capital prior to the proposed re-structuring.[S POINTS b) Consider the implications of the proposed re-structuring for the expected earnings per share and identify the range of EBIT over which the EPS will be higher following the re-structuring. [20 POINTS c) Determine the value of the company and the value of its remaining equity after the re structuring. [5 POINTS d) Determine the cost of equity and WACC following re-structuring. (15 POINTS)