DH company is unlevered, has an equity beta of 1.25 and unlevered cash flows of $76,800 per annum that will continue in perpetuity. The expected market return is 10% p.a and Treasury bills earn 2% p.a. DH is currently considering issuing $300,000 in new debt with an 8% interest rate. DH would repurchase $300,000 of its own shares, using the proceeds of the debt issue. There are currently 32,000 shares outstanding and the companys effective marginal tax rate is 34%.

a) Calculate the companys unlevered cost of equity capital. (2 marks)

b) Calculate the value of a share in the company before it announces the capital restructure. (2 marks)

c) Assuming the company completes the restructure:

i. Calculate the value of each share in the company, after the restructuring is complete. (2 marks)

ii. Calculate the levered cost of equity capital. (2 mark)

iii. Calculate the new WACC. (2 marks)