. Four, Inc. is a clothing retailer with a current share price of $10.00 per share and has 25 million shares outstanding. Suppose that Four, Inc. announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares.

(a) Assuming perfect capital markets (including no income tax), find Four Inc.'s expected share price after the announcement. [6 points]

(b) Find the new share price after the announcement if Four, Inc. pays 35% in corporate tax and shareholders expect the change in capital structure to be permanent. Also assume that corporate taxes are the only market imperfection. [Assume that the $10 share price already reflects the 35% tax rate for the unlevered firm].