Consider a firm that is 100% equity financed. The expected net operating income is 24 million, the corporate tax rate is 40%, and the cost of capital is 12%.

(a) What is the value of the firm?

(b) The firm decides to borrow 60 million at the interest rate 5%. The proceeds are used to repurchase equity in the same amount. What is the present value of the tax shield? (c) What is cost of equity after the repurchase?

(d) What is present value of the tax liability?

(e) What is weighted average cost of capital after the repurchase?