Pesca dos A$$ores is a fishing company in the Isle of A$$ores$.$ It has $80$ million shares

outstanding with a market price of $32$ per share and no debt. Pesca dos A$$ores has had

consistently stable earnings, and pays a $25\%$ tax rate. Management plans to borrow $1$

billion on a permanent basis through a leveraged recapitalization in which they would use

the borrowed funds to repurchase outstanding shares. Disregard any costs of financial

distress for this question, i$.$e$.,$ you can consider they are always zero.

a$)$ What is the present value of debt tax shields created by the leveraged

recapitalization operation?

$[4$ marks$]$

b$)$ What is the share price, number of shares outstanding, market value of equity,

market value of debt and the enterprise value before the announcement of the

recapitalization?

$[4$ marks$]$

c$)$ What is the share price, number of shares outstanding, market value of equity,

market value of debt and the enterprise value after the announcement of the

recapitalization, but before the company issues debt?

$[4$ marks$]$

d$)$ What is the share price, number of shares outstanding, market value of equity,

market value of debt and the enterprise value after the issuance of debt, but before

the company uses the borrowed funds to buy back shares?

$[4$ marks$]$

e$)$ What is the share price, number of shares outstanding, market value of equity,

market value of debt and the enterprise value after the company uses the borrowed

funds to buy back shares?