Tesla currently uses no debt financing (i.e. total capital equals total equity) but is considering a recapitalization to change its capital structure by issuing new debt and using the proceeds to buy back shares of common stock. You are given the following information about the firm, including the cost of debt (Ro) at various levels of potential leverage (Wo). Complete Table 2 below. What is the optimal capital structure (i.e. optimal level of debt)? How can you tell? a. b. What is the intrinsic value per share at the optimal capital structure? Table 1 Unlevered Beta Risk-Free Rate Market Risk Premium Tax Rate Total Invested Capital Current # of Shares Outstanding Current Stock Price Initial Free Cash Flow (FCF) FCF Constant Growth Rate 1.1 3.40% 7% 34% $1,200,000 135,000 $23.55 $250,000 3% Table 2 0% 25% 40% 50% 10% 5.40% 0.00% 5.60% 6.80% 8.40% Weight of Debt (WD) Cost of Debt (RD) Weight of Equity (WE) Levered Beta Cost of Equity (Re) WACC Firm Value Debt Value Equity Value New # of Shares New Price per Share