F Genius Ltd, is an unlevered firm with expected annual earnings before taxes of $30 million in perpetuity. The current required return on the firms equity is 15% p.a. compounded annually, and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.8 million shares of common stock outstanding and is subject to a corporate tax rate of 30 percent. The firm is planning a recapitalization under which it will issue $50 million of perpetual 6 percent debt and use the proceeds to buy back shares.

1. Calculate the value of the company and value of equity before the announcement? What is the share price? Show all workings. (4 Marks)
2. Calculate the company value after the recapitalization plan is announced. What is the value of equity and share price after the announcement? Show all workings. (6 Marks)