Terck, a leading pharmaceutical company, currently has a balance sheet that is as follows:

Liabilities			Assets
Long-term Liab	$ 1,000		Fixed Assets	$ 1,700
Equity	$ 1,000		Currents Assets	$ 300
Total	$ 1,000		Total	$ 1,000

The firm's income statement looks as follows:

Income Statement
Revenues	$ 1,000
COGS	$ 400
Depreciation	$ 100
EBIT	$ 500
Long-term Int. Exp	$ 100
EBT	$ 400
Taxes	$ 200
Net Income	$ 200

The firm's bonds are all 20-year bonds with a coupon rate of 10%that are selling at 90% of face value (the yield to maturity on these bonds is 11%). The stocks are selling at a P/E ratio of 9 and have a beta of 1.25. The risk free rate is 6%.

a. What is the firm's current cost of equity?

b. What is the firm's current after-tax cost of debt?

c. What is the firm's current weighted average cost of capital?

Assume that management of Terck, which is very conservative, is considering doing an equity-for-debt swap (i.e., issuing $200 more of equity to retire $200 of debt). This action is expected to lower the firm's interest rate by 1%.

d. What is the firm's new cost of equity?

e. What is the new WACC?

f. What will the value of the firm be after the swap? (zero growth rate)