A firm currently has no debt. Its' required return on stock is based on an unlevered beta of 0.8, a risk free rate of 4% and a market risk premium of 5%. EBIT (taxable income if an all equity firm) = $1600 Capital expenditures = depreciation, so no net investment. Assume the firm faces a 25% tax There are 100 shares All the cash flows are level perpetuities a) What is the firm's stock worth per share with no debt assuming the required return on unlevered firm is 8% = 4% + .8 x 5%? b) What would the firm be worth if the firm could borrow $1,000 risk free at 4%, there was no chance of default, but the loan would be paid off with a $1,000 payment in 5 years and the firm figured it would never borrow again! The firm will borrow $1000 (and just pay a dividend right away to investors with the borrowed money. What is the total firm value (debt + equity) and what is the equity value per share after the money is borrowed and the dividend paid?