1. Murloc plc is expected to generate a free cash flow of 2 million per year in perpetuity. Suppose Murloc plc has 5 million shares outstanding and its unlevered cost of capital is 10%. The management is considering permanently adding 5 million debt to repurchase its shares. Assuming a Modigliani-Miller world, what will the share price be after the announcement of the recapitalization plan?

1. 3.0
2. 3.4
3. 4.0
4. 4.4
5. none of above