Hi, I'm stumped with the following question. Could I please get some help? Thank you!

Lion Corp is an all equity firm. The firm's annual EBIT is currently $10 million and is

expected to remain at that level indefinitely. Assume the firm pay's a dividend each year equal to

its net income. The current expected return on Lion's stock is 20% and the firm pays corporate

tax at the 35% rate.

(a) Calculate the current value of Lion Corp. as an unlevered firm.

(b) Suppose that Lion sells $10 million in debt and repurchases $10 million in equity. The debt

they issue will offer a 10% interest rate. Once Lion undertakes this action, they intend to keep

this level of debt financing for the foreseeable future. What will be the total market value of

Lion Corp. (debt plus equity) after this change in financial structure is complete?

(c) If Lion takes the actions outlined in part (b), what will be the expected return on the firm's

stock after the change in capital structure?

(d) If Lion takes the actions outlined in part (b), what will be the firm's weighted average cost of

capital after the change in capital structure?