ALL INFORMATION IS FICTICIOUS AND DOES NOT REVEAL ANY PERSONAL INFORMATIONStephenson Real Estate Company was founded $25$ years ago by the current CEO, Robertson

Stephenson. The company purchases real estate, including land and buildings, and rents the property to

tenants. The company has shown a profit every year for the past $18$ years, and the shareholders are

satisfied with the company's management. Prior to founding Stephenson Real Estate, Robert was the

founder and CEO of a failed alpaca farming corporation. The resulting bankruptcy made him extremely

averse to debt financing. As a result, the company is entirely equity financed, with $9$ million shares of

common stock outstanding. The stock currently trades at $$42\mathrm{.}50$ per share. Stephenson is evaluating a

plan to purchase a huge tract of land in the southeastern United States for $$50$ million. The land will

subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson's annual

pretax earnings by $$12$ million in perpetuity. Kim Weyand, the company's new CEO, has been put in

charge of the project. Kim has determined that the company's current cost of capital is $12\mathrm{.}5\%.$ She feels

that the company would be more valuable if it included debt in his capital structure, so she is evaluating

whether the company should issue debt to entirely finance the project. Based on some conversations

with investment banks, she thinks that the company can issue bonds at par value with a coupon rate of

$8\%.$ From her analysis, she also believes that a capital structure in the range of $70\%$ equity $\frac{?}{30}\%$ debt

would be optimal. If the company goes beyond $30\%$ debt, its bonds would carry a lower rating and a

much higher coupon because the possibility of financial distress and the associated costs would rise

sharply. Stephenson has a $40\%$ corporate tax rate $($state and federal$).$Suppose Stephenson decides to issue debt to finance the purchase:

A$.$ What will the market value of the Stephenson Company be if the purchase is financed

with debt?

B$.$ Construct Stephenson's market value balance sheet after both the debt issue and the

land purchase. What is the price per share of the firm's stock?