Alpha Inc. is an all equity firm with a perpetual EBIT of $1.6 million per year and has 100,000 shares outstanding. The cost of unlevered equity is 14%. The firm plans to issue $2 million worth of debt to repurchase stock. The tax rate of the firm is 40%. What is the number of shares outstanding after the stock repurchase?

a. 66,676

b. 69,993

c. 70,317

d. 72,224

e. 73,881

In the above problem, if the pre-tax cost of debt is 9%, what is the cost of levered equity after the stock repurchase?

a. 15.06%

b. 15.28%

c. 15.51%

d. 15.74%

e. 15.96%

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