$6$

Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm's debt$-$equity is expected to rise from $35$ percent to $50$

percent. The firm currently has $$2\mathrm{.}7$ million worth of debt outstanding. The cost of debt is $6\mathrm{.}4$ percent. The firm expects to generate a cash flow of $$940,000$ per year in

perpetuity and pays no taxes.

What is the market value of the firm $($in millions$)$ before the repurchase announcement? $($Hint: use the leverage and the debt outstanding.$)$

Type your answer...

$7$

$1$ point

b$.$ What is the cost of capital for the company before the repurchase announcement? $($Hint: consider how the cash flows of the company relate to its value.$)$

Type your answer...

$8$

$1$ point

c$.$ What is the expected return on the equity before the repurchase announcement?

Type your answer...

$9$

$1$ point

d$.$ What is the expected return on the firm's equity after the repurchase announcement?

Type your answer...

$1$ point

e$.$ What is the cost of capital for the company after the repurchase announcement?

Type your answer...