A company currently has assets of $10 million and it is 100 percent equity financed. The company currently has net income of $2 million and it pays out 40 percent of its net income as dividends. Both net income and dividends are expected to grow at a constant rate of 5 percent per year. There are 400,000 shares of stock outstanding, and it is estimated that the current cost of capital is 12 percent. The company is considering a recapitalization exercise where it will issue $2 million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes ahead with the recapitalization, its before-tax cost of debt will be 10 percent, and the cost of equity will rise to 14 percent. The company has a 40 percent tax rate. Answer questions (a) and (b) using the information above.

1. What is the current share price of the stock (i.e. before recapitalization)

2. Assume that the company maintains the same payout ratio, what will be the stock price after recapitalization.

3. Mike Industries has a capital structure that consists solely of debt and common equity. The company can issue debt at 11%. Its stock currently pays a $2 dividend per share (D₀ = $2), and the stocks price is currently $24.75. The companys dividend is expected to grow at a constant rate 7% per year; its tax rate is 35% and the company estimates that its WACC is 13.95%. What percentage of the companys capital structure consists of debt financing?

4. Jackson Co. is considering a 5-for-2 stock split. The current stock price is $90.00 per share, and the firm believes that its total market value would increase by 8% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split?

Please show workings