Flood motors is an all equity firm with $200,000$ shares outstanding. The company's EBIT is $$2,000,000$ and is expected to remain constant overtime. The company will distribute all its earnings as dividends to its shareholders. The company is subject to a $40\%$ tax rate.

The company is considering issuing $$2,000,000$ worth of bonds and using the proceeds for a stock repurchase. If issued the bonds would have an estimated yield to maturity of $10$ percent. The risk free rate in the economy is $6\mathrm{.}6\%$ and the market risk premium is $6\%.$ The company's beta is currently $0\mathrm{.}9,$ but its investment bankers estimate that the company's beta would rise to $1\mathrm{.}1$ if they proceed with the repurchase and the change in the capital structure.

What is the stock price before the change in the capital structure?

What would the price be following the change in the capital structure?

What is the effect of the change in the capital structure on the company's ROE? Should the company go ahead with the change?