Midco Industries has $200$ million shares outstanding with a market price of $$150$ per share and no debt. Midco has had consistently stable earnings, and pays a $35\%$ tax rate. In order to capture the tax shield, management plans to borrow $$1,000$ million on a permanent basis through a leveraged recap in which they would use the borrowed funds to repurchase outstanding shares.

$$ When and why does the value of the Midco$$s equity change? Explain verbally. $(5\%)$

$$ Show the Midco$$s original and new balance sheets using a table or T$-$accounts, specifying values of each account $($assets$,$ debt, and equity$)(10\%).$