Solar energy has 1 million shares available. The shares sell for 100 dollars per share. The company is financed through its own equity and isnt taxable. The investment beta is 1.2 l. The markets risk premium is 7%, risk free interest is 2%. Assume that Modigliani and millers conditions holds.

A) what is the value of the company

B) what is the required return of the equity.

The management thinks that the share price will increase if they change their capital structure. And exchange the companies equity with 50% perpetual debt.

c) do you agree with the management. Do calculations which shows the value after changing the capital structure.

Government decides that the company must pay 25% tax.

D) what is the companies value after the new preconditions.

E) what is the companies total capital cost under the new preconditions. Assume debt ratio to be 1.

the investment beta is 1.2% not 1.2 l