KD Industries is expected to generate free cash flow of $$200$ million next year. Since next year, the free

cash flow is expected to grow at a stable rate of $6\%$ for the first $10$ years and then grow $3\%$ forever. It has

$$0$ million cash in the bank now. The firm currently uses $100\%$ equity, and its cost of equity is $12\%.$ It

pays a $35\%$ corporate tax rate.

What is the firm value now?

The firm's management plans to borrow $$200$ million on a permanent basis through a leveraged

recapitalization in which they would use the borrowed funds to repurchase outstanding shares. The

cost of debt will be $5\%.$ After the recapitalization, what should be the firm value?

Assume that the firm's management is also considering another recapitalization plan, which is the

borrow money to maintain a constant debt to equity ratio of $0\mathrm{.}75.$ What is the firm after$-$tax WACC

after the recapitalization? The cost of debt will be $5\%.$