Copper company CCT has three million common shares outstanding, and perpetual

debt with a market value of $30 million. Its interest rate is 8%, and its corporate tax rate is 40%. Its

levered beta is 1.2. The risk-free rate is 3% and the market portfolio return is 12%.

CCT's EBIT is expected to be $10 million every year, and CCT pays out all earnings as dividends to

shareholders. CCTs competitors have an average market-value-based debt-to-asset ratio of 20%. The

CFO would like to decrease CCTs debt-to-asset ratio to the industry norm to decrease risk. This

would mean issuing additional equity and paying off some debt.

a) Calculate the current cost of equity, value of equity, price per share, total value of CCT and CCTs

debt-to-asset ratio.

b) Calculate the total value of equity that CCT should issue to decrease the debt-to-asset ratio to the

industry standard. Calculate the share price following the issue of additional equity. Explain why the

share prices changes the way it does.