QQ Co. has 15 million shares of common equity outstanding, which are currently trading at $11 per share.The company currently has no debt outstanding, an equity beta of 1.The management of AQQ Co. has announced that they are going to issue $30M in perpetual debt and use all of the proceeds to repurchase shares.Assume the debt is riskless and the current risk-free rate is 2%. The expected return on the market is 7%. Assume the M&M assumptions hold.

Section I

a) What is the expected return on the firm's assets, rA, before the restructuring?

Enter your answer as a decimal (not as a percent) rounded to four (4) decimal places.

b) What is the price per share after the restructuring? $

Enter your answer rounded to three (3) decimal places.

c) How many shares does the firm repurchase, in millions?

Enter your answer rounded to four (4) decimal places.

d) What is the debt-to-equity ratio after the restructuring?

Enter your answer

e) What is the equity cost of capital, rE, after the restructuring?

Enter your answer as a decimal (not as a percent) rounded to four (4) decimal places.

f) What is the unlevered value of the firm, VU, in millions of dollars? $

Enter your answer rounded to two (2) decimal places.

For the remainder of the problem, assume instead that prior to the restructuring there was a corporate tax rate of 35% and that the restructuring announcement was unexpected. All other assumptions of the problem are the same.

g) What is the present value of the expected debt tax shield, in millions of dollars? $

Enter your answer rounded to two (2) decimal places.

h) What is the share price after the restructuring? $

Enter your answer rounded to three (3) decimal places.

i) How many shares are repurchased, in millions?

Enter your answer rounded to four (4) decimal places.

j) Suppose that, in addition to corporate income taxes of 35%, there are personal taxes on equity income of 10% and on interest income of i. What is i such that the present value of the debt tax shield, after accounting for both corporate and personal taxes, is zero?

Enter your answer as a decimal (not as a percent) rounded to four (4) decimal places.