Tempest Corporation expects an EBIT of $$37,700$ every year forever. The company currently

has no debt, and its cost of equity is $11$ percent. The tax rate is $22$ percent. The current market

price of the company$$s stock is $$2$ per share.

a$.$ What is the current value of the company? How many outstanding shares of stock does the

company have now? $($Round to the nearest integer for the number of shares.$)$

Suppose the company can borrow at $6$ percent. The company is considering a recapitalization

by issuing debt to buy back part of its equity, and achieve a capital structure with $50\%$ debt

weight.

b$.$ What will be the value of the company after this recapitalization? How much debt will the

company issue?

c$.$ How many outstanding shares of stock does the company have after this recapitalization? At

what price does the company buy back each share? $($Hint: the company needs to buyback stock

shares at a new market price.$)$