Graper Inc., is an unlevered firm with expected annual earnings before taxes of $26.1 million in perpetuity. The current required return on the firms equity is 14 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.98 million shares of common stock outstanding and is subject to a corporate tax rate of 24 percent. The firm is planning a recapitalization under which it will issue $36.2 million of perpetual 5.9 percent debt and use the proceeds to buy back shares.

1. Calculate the value of the company before the recapitalization plan is announced.

2. What is the price per share?

3. Use the APV method to calculate the company value after the recapitalization plan is announced.

4. What is the price per share after the recapitalization is announced?

5. How many shares will be repurchased?

6. What is the price per share after the recapitalization and repurchase?

7. Use the flow to equity method to calculate the value of the companys equity after the recapitalization. (15 pts)