Lone Star Industries just issued $195,000 of perpetual debt and used the proceeds to repurchase stock. The interest rate for the debt is 9%. The company expects to generate $83,000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firms unlevered cost of capital is 15%. And the corporate tax rate is 40%.

a. What is the value of the company as an unlevered firm?

b. Use the APV method to calculate the value of the company with leverage.

c. What is the required return on the firms levered equity?

d. Use the FTE method to calculate the value of the companys equity.