Answer questions 2-4 using the following information

JBL Industries is an all-equity financed corporation with a current 12% cost of capital and $200m market capitalization (risk free rate is 5% and the companys stock beta is 1). JBL business has become stable and the firm has been generating a stable stream of cash in recent years.

2)Management contemplates to replace 25% of the equity with debt through issuing risk-free debt and repurchasing stock. What would be the required return on equity after this change? Assume no taxes and efficient capital markets.

a.14.33%

b.12.00%

c.13.75%

d.19.00%

3)In the previous question (2), how much would be market value of firms equity after the capital structure adjustment? Assume no taxes and efficient capital markets

a.$200m

b.$150m

c.$220m

d.$170m

4)How much would be the market value of firms equity after the capital structure adjustment described in question (2 & 3) if the firm has an effective tax-rate of 40% (assume tax-shield are discounted at the risk free rate).

a.$200m

b.$150m

c.$220m

d.$170m.