16. Consider TGIF, a mature firm, that publishes the following information on its annual cash flows: -EBITDA: $30 millions - Annual depreciation: $2 millions -Annual capital expenditures (CAPEX): $2 millions -Changes in NWC: $0 Given its position, we can assume that the firm cash flows will be constant to perpetuity. The corporate tax rate is 35%. The equity of TGIF is made up of 500,000 shares which now trade at a market price of $200 per share. The firm currently has no net debt. Calculate: a. the firm value of TGIF the value of equity the cost of equity the cost of capital i. ii. ili. iv. b. The financial director of TGIF estimates that the firm can increase its leverage in order to benefit from the tax-shields of debt. He intends to borrow $25 million at a cost of 7 % per year . You assume that the debt stays risk-free. The funds will be used to buy back shares on the market. If the firm decides to change its capital structure, what would be the impact on: the value of the firm can ii. the value of equity the cost of equity the cost of capital Determine the new price per share following this financial operation and how many shares would be repurchased. iii. iv. c. You know that the expected return of the market portfolio is equal to 17 %. What is the beta of equity of TGIF before the change on the capital structure? What is the new beta after the change? d