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