Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm's debt-equity is expected to rise from 35 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of debt is 6.4 percent. The firm expects to have an EBIT of $940,000 per year in perpetuity and pays no taxes.

a. What is the market value of the firm (in millions) before the repurchase announcement? (Hint: use the leverage and the debt outstanding.)

b. What is the cost of capital for the company before the repurchase announcement? (Hint: consider how the cash flows of the company relate to its value.)

c. What is the expected return on the equity before the repurchase announcement?

d. What is the expected return on the firm's equity after the repurchase announcement?

e. What is the cost of capital for the company after the repurchase announcement?