McKean Inc. is an all-equity firm with 200,000 shares outstanding. The companys EBIT is $2,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year as dividends, so its earnings per share (EPS) equals its dividends per share (DPS). The companys tax rate is 40%. The company is considering issuing $2 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated YTM of 10%. The risk-free rate in the economy is 6.6%, and the market risk premium is 6.0%. The companys beta is currently 0.90, but investment bankers say the beta will rise to 1.11 if the recapitalization occurs. Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization.

1. What is the company's Current Cost of Capital (CAPM), Dividend per share, and stock price?
2. Using the price of share calculated (i) how much shares will be repurchased by the amount of debt issued?
3. What are the company's Cost of Capital (CAPM), Dividend per share (for the remaining number of shares), and stock price after recapitalization?
4. Should Mc Kean Inc proceed with recapitalization?