Ottawa Snow Removal (OSR), a Canadian residential services company, is an all-equity firm. Currently it has 1 million shares outstanding and the price per share is $100. OSRs EBIT is $20 million per year and it is expected to remain at this level forever. The company pays all of its earnings as dividends. OSR is considering issuing $50 million worth of debt which it will use to buy back some of its shares; the pre-tax cost of debt is 3%. OSR assets beta is equal to 1.5.

1. Assuming (unrealistically) that OSR operates in a country where there are no taxes:

1. What is the present value of OSRs interest tax shield under the proposed capital structure?
2. What is the OSRs current cost of equity?
3. What will be OSRs equity beta after restructuring?

2. Assuming that corporate taxes are 34% and unlevered cost of equity is 6%:

1. What will be the OSRs market value after restructuring?
2. What will be OSRs equity beta after restructuring?
3. What will be the OSRs cost of equity after restructuring?
4. What will be the OSRs WACC before and after restructuring?