The Rivoli Company is an all-equity firm with 250,000 shares outstanding. The firms EBIT is $2.2 million, which is expected to remain constant in the future. The firm currently has no short-term investments with a tax rate of 25%. Rivoli is considering selling bonds and using those proceeds to repurchase stock. The company is considering levering up to wd=35% of total value of operations post debt issuance by issuing bonds with rd=8%. The risk-free rate is 6%, the market risk premium is 5% and the beta is currently 0.85 but the beta is expected to increase to 1.15 if the recapitalization occurs.

a. What is the firms stock price before the recapitalization?

b. What is the new WACC for the firm?

c. What is the levered value of the firm? What is the amount of debt?

d. Based on the new capital structure, what is the new stock price? How many shares does the firm have left after the repurchase?