Suppose that all the assumptions for the two M&M propositions hold.

Green Inc. is currently an all$-$equity financed company. It has $500,000$ shares outstanding

worth $$10$ million. It generates a constant, perpetual stream of after$-$tax earnings of $$2$

million a year.

a$.$ What$$s the stock price per share for Green Inc.?

b$.$ What$$s the expected return on Green$$s equity?

c$.$ What$$s Green Inc.$$s WACC?

Suppose that Green Inc. plans to raise $$2$ million via debt financing and use the proceeds

to repurchase equity. The debt carries an interest rate of $8\%$ a year.

d$.$ What$$s the expected return on Green$$s equity after the capital structure change?

Be careful about what D and E are equal to$.$

e$.$ What$$s the after$-$tax WACC of Green Inc.? The corporate tax rate is $40\%.$