Answer handwritten or Excel. M&M, Inc. is expected to have EBIT of $450M every year, forever. The companys stock is currently trading at a price consistent with a P/E multiple of 12. There are 100M shares outstanding. The company has $1,800M worth of debt outstanding paying interest (once a year) at an annual rate of Rd=5% (assume the yield on the debt is the same as the interest rate). The company pays out all of its net income as dividends every year. There are no taxes (i.e., perfect capital markets).

a. What is the companys current EPS?

b. What is the current market capitalization of the company (i.e., the total value of its equity)?

c. What is the companys (pre-tax) weighted average cost of capital (WACC)?

For parts d, e, and f assume the company issues $900M worth of new stock (at the market price), and uses the proceeds to pay off the equivalent principal amount of debt. Assume the yield on the debt does not change from that given above.

d. What will be the companys new EPS?

e. What will be the companys new equity cost of capital (Re)?

f. What will be the companys (pre-tax) WACC?