Selected financial information for N$7$ Tactical Solutions is provided in the table below. N$7$ is currently all equity financed, but it is considering a leveraged capital structure, details of which are presented in the column labeled "Proposed."

Assume that N$7$ generates perpetual annual EBIT. Assume that all cash flows occur at the end of the year and we are currently at the beginning of a year. Assume that taxes are zero. Assume that all of net income is paid out as a dividend. Assume that the debt is perpetual with annual coupons $($and yield$)$ of $3\%.$

If N$7$ recapitalizes, it will use the borrowed funds to repurchase $($and cancel$)$ shares. Determine both the value of the company and the value of the company's equity if it recapitalizes.

Capital Structure

Capital Structure

Current

Proposed

EBIT

$$150,000$

$$150,000$

Debt, D

$$0$

$$900,000$

Cost of Debt, kd

$3\%$

Cost of Equity

$5\%$

Group of answer choices

Company value: $$3,000,000$; Equity value: $$2,100,000$

Company value: $$3,000,000$; Equity value: $$3,900,000$

Company value: $$3,000,000$; Equity value: $$3,000,000$

Company value: $$2,100,000$; Equity value: $$2,100,000$