Swedish Match is a profitable smokeless tobacco company. In the Fall of $2005,$ Swedish Match is considering a leveraged recapitalization.

The case illustrates the tax benefits of debt and the mechanics of recapitalization $$ resetting the mix of debt and equity. Please address the following questions:

$1.$ Assuming Swedish Match faces a $28\%$ tax rate on income and can issue bonds at a fixed krona yield of $4\mathrm{.}5\%,$ how much will the company save annually in taxes for a SEK$4$ billion recapitalization? What is the present value of all future interest tax shields?

$2.$ What will the company$$s book value balance sheet look like after it completes the debt issuance and share repurchase? Use the balance sheet data provided in Exhibit $7$ to illustrate the impact.

$3.$ Can Swedish Match afford to borrow this much money? What are the risks? Is it realistic to expect a BBB$+$ rating? Should the company go ahead with a leveraged recapitalization?