Alpha is an all-equity firm. It has 100,000 shares outstanding, currently worth 25 per share. The unlevered cost of equity is 15%. The firm has decided to issue 1,500,000 of 6% debt, and to use the proceeds to repurchase shares. Assume a 20% corporate tax rate.

i) According to Modigliani-Miller Proposition I with corporate taxes, what is the market value of the firms equity after the repurchase?

ii) What are the firms earnings before interest and taxes? (Assume that earnings are cash flows.)

iii) What is the return on equity after the change in the firms capital structure?

iv) What is the value of a share after the capital structure change? Support your answer by showing the relevant calculations.