River Cruises is an entirely equity financed company. The current position of the company is as follows:
Number of shares	102000
Price per share	$ 11
Operating income	$ 157,000
Earning per share	$ 1.54
The CFO of the company is proposing to issue new debt and repurchase the share using the cash from issuing the debt as follows:
Amount of debt issue	$ 224,400
Interest rate of debt	8%
a. What is the market value of the company now? [2 marks]
b. What is the return on equity of the company? Assume that there is no tax. [2 marks]
c. What will be value of the company after the proposed change in capital structure (assume no-tax world)? [4 marks]
d. What will be the return on equity and return on asset (weighted average cost of capital) with the proposed change assuming no-tax world? [3+2 =5 marks]
e. What will be the value of company after the proposed changes in capital structure assuming that the company pays 25% tax? [4 marks]
f. What will be the return on equity and return on asset (weighted average cost of capital) with the proposed change assuming that the company pays 25% tax? [3+3 =6 marks]
g. If the proposed new capital structure induces agency costs and bankruptcy costs, what will the value of the after company? Given that the present value of expected agency cost is $10,000 and the present value of expected bankruptcy cost is $15,000. The tax rate is 25%. [2 marks]