Selected financial information for Omni Consumer Products Inc. is provided in the table. Omni is currently all equity financed, but it is considering a leveraged capital structure, details of which are presented in the Proposed column. Assume that Omni 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. The company isnt growing so there are no investments in working capital or fixed assets. Assume that taxes are zero and all of net income is paid out as a dividend. Assume that the debt is perpetual with annual coupons at the rate kD. It will use the borrowed funds to repurchase (and cancel) shares. What will its equity be worth after the recapitalization?

a) 1000000

b) 1250000

c) 1500000

d) 1750000

Selected Financial Information Omni Consumer Products Inc. Capital Structure Current Proposed EBIT $125,000 $125,000 Debt, D $0 $535,714.29 Cost of Debt, ko 5% Cost of Equity, ku 7%