Q5 Robo LLC has no debt and a beta of 1.50. Robo expects free cash flow of $25 million per year forever. If Robo is considering a change: by issuing debt to buyback stock to have a 30% debt-equity ratio that it will maintain this ratio forever. With this change assume Robos cost of debt capital will be 6.50% and their tax rate is 35%. If the expected market return is 11% and the risk free rate is 5% answer the following questions:

What is the equity cost of capital and the WACC before the change takes place?

• What is the equity cost of capital and the WACC after the change takes place?

With the change what is the value of the tax shield?