Lincoln Corp. and Charles Corp. are identical, except their capital structures. Lincoln Corp, an all-equity firm, has 35 million shares of stock outstanding, currently worth $35 per share. Charles Corp. uses leverage in its capital structure. The market value of Charles Corp. debt is $350mil, and its cost of debt is 4.5 percent. Each firm is expected to have earnings before interest and tax of $135mil. in perpetuity. Assume that every investor can borrow at 4.5 percent per year. Corporate tax rate is 40%.

a. What is the value of Charles Corp?

b. How much will it cost to purchase 20% of Charles Corp. equity?

c. What is Charles Corp. cost of equity?

d. What would be Charles Corp. Corporations weighted average cost of capital (WACC) ?