Kurz Manufacturing is currently anall-equity firm with 28 million shares outstanding and a stock price of $9.50 per share. Although investors currently expect Kurz to remain anall-equity firm, Kurz plans to announce that it will borrow $46 million and use the funds to repurchase shares. Kurz will pay interest only on thisdebt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 38% corporate tax rate.

a. What is the market value ofKurz's existing assets before theannouncement?

b. What is the market value ofKurz's assets(including any taxshields) just after the debt isissued, but before the shares arerepurchased?

c. What isKurz's share price just before the sharerepurchase? How many shares will Kurzrepurchase?

d. What areKurz's market value balancesheet, and share price after the sharerepurchase?