Divided Airlines is currently an unlevered firm. At the end of this year and all subsequent years, the company expects to generate FCF of $200 million. All earnings after tax are paid out as dividends. The firm is considering a capital restructuring and borrowed $200 million of debt. To pay off the debt, firm will pay $8 million in interest every year for 15 years. Its cost of debt is 4%. Unlevered firms in the same industry have cost of equity of 12%.

Please type your answers for the following three questions in the answer box and clearly label which question your answer is for. Note that you cannot upload your answer as an attachment.

1. In the perfect M&M's world, what is Dividend Airlines's value after restructuring?

2. In the perfect M&M's world, what is Dividend Airlines' cost of equity after restructuring?

3. Suppose now we know the corporate tax rate is 21%. What is the new value of Dividend Airlines after restructuring when taxes are being considered?