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

Liability		Assets
Long term bonds	$ 1,000.00	Fixed Assets	$ 1,700.00
Equity	$ 1,000.00	Current Assets	$ 300.00
Total	$ 1,000.00	Total	$ 1,000.00

The firms income statement:
Revenues	1000
COGS	400
Depreciation	100
EBIT	500
Long term interest expense	100
EBT	400
Taxes	200
Net income	200

The firms bonds are all 20-year bonds with a coupon rate of 10% that are selling at 90% 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 the management of Terck, which is very considerative, is considering doing an equity-for-debt swap (issue $200 more of equity to retire $200 of debt). The 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)