ABC Inc. is currently an all-equity firm. The company has 80 million shares outstanding and a share price of $10 per share.The company is expected to generate an EBIT (Earnings Before Interest and Taxes) of 150 million dollars forever (starting one year from now). This is given in the following table, together with the optimistic and pessimistic forecasts which have equal probabilities.

State	High	Expected	Low
EBIT	250	150	50

Assume the firm has no depreciation, no capital expenditures and no changes in net working capital. The corporate tax rate is 20%.

a. What is the unlevered cost of capital for ABC?

b. Suppose the risk-free rate is 10%. What is the maximum amount of perpetual debt that the firm could issue, such that the debt would still be risk free?

c. Suppose the firm decides to issue the amount of debt you calculated in part b and to pay out the proceeds from the debt issue by repurchasing shares.

i. What is the value of the firm after the change in capital structure?

ii. What is the market capitalization after the change in capital structure?

iii. ) What is the share price after the change in capital structure (i.e. after the debt issue and the share repurchase)? How many shares are repurchased and at what price? How many shares are outstanding after the change in capital structure?