ChaserCon, Inc. is an all-equity financed firm with expected after-tax free cash flows of $21 million per year in perpetuity. The current required return on the firms equity is 14%. The company has 1.5 million shares of common stock outstanding and is subject to a corporate tax rate of 20%. The firm is planning a recapitalization under which it will issue $60 million of perpetual debt with an interest rate of 9% and use the proceeds to buy back shares.

1. Calculate the value of the firm before the recapitalization plan is announced. What is the value of equity before the announcement? What is the price per share? (5 points)

2. Use the APV method to calculate the firm value after the recapitalization plan is announced. What is the value of equity after the announcement? What is the price per share? (6 points)

3. How many shares will be repurchased? What is the value of equity after the repurchase has been completed? What is the price per share? (6 points)

4. Use the flow to equity method to calculate the value of the companys equity after the recapitalization. (5 points