: Ingles Inc., is an all-equity firm. The company has a market cap of $250M. The company is considering issuing $100M of debt to repurchase stock; the debt will be kept perpetually at $100M; interest on the debt is 7.0%. The company pays taxes at 20%.

a) What is the value of the levered firm after this recapitalization, and what is the market cap of the equity in the levered firm? (Ignore effects of financial distress)

( b) If the cost of equity before the recapitalization was 11.0%, what return will equity investors require in the newly capitalized firm? (Again, ignore effects of financial distress)

( c) What was the WACC of the original unlevered firm, and the newly capitalized firm? (Again, ignore effects of financial distress)