Risk Limited has a debt/equity ratio of 3/2. It has 10,000,000 shares outstanding trading at $30 each. Its debt is perpetual with a coupon rate of 7% and is trading at par. Drisk expects to have EBIT of $100,000,000 per year in perpetuity. Drisk is planning to payoff $100,000,000 of its debt. It will issue sufficient number of common shares and will use the cash proceeds to pay off the debt. After the repurchase of debt, it will maintain the new capital structure indefinitely. Drisks corporate tax rate is 40%

a. What are Drisks current value, cost of equity and the rWACC?

b. What is the Drisks value after the announcement of the debt repurchase?

c. How many shares of stock will Drisk issue?

d. After the capital restructuring has taken place, what will be Drisks

1. Total equity

2. Number of shares outstanding

3. Price per share

4. Cost of equity

5. rwacc