SIROM Scientific Solutions has $8 million in equity and $5 million in bank debt on its balance sheet. stock price is $50 and the firm has 200,000 shares outstanding. The bank has outstanding semiannual debt with a price of $900 on a par value of $1000, coupon rate of 4%, and 15 years to maturity. The estimated equity beta is 2. If the market risk premium is 7% and the risk-free rate is 4%, compute the weighted average cost of capital if the firm's tax rate is 30%.

Strider Publishing Company, an all-equity firm, expects perpetual earnings before interest and taxes (EBIT) of $2.5 million per year. Strider's after-tax, all-equity discount rate is 20 percent. The firm is subject to a 34 percent corporate tax rate. a. What is the value of Strider Publishing? b. If Strider issues $600,000 of debt and uses the proceeds to repurchase stock, what will the value of the firm be? c. Explain the difference in your answers to (a) and (b). d. What assumptions are you making when valuing Strider? e. In the real world, how do changes in these assumptions impact the valuation?