The Stephenson Real Estate company was founded 25 years ago by current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the properties to tenants. The company has has made a profit every year for the past 18 years, and shareholders are satisfied with the company's management. company. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a cattle breeding farm. alpacas, which went bankrupt. With that experience he acquired an extreme aversion to debt financing. As a result, the real estate company is financed entirely by equity capital, with 12 million common shares outstanding. Currently the shares are sold at a unit price of $53.80. Stephenson is evaluating a plan to buy a tract of land in the southeastern United States for $49 millions. The land will later be leased to farmers. This purchase is expected to increase annual profits. before taxes from Stephenson at $11.5 million in perpetuity. Kim Weyand, the new financial director of the company, was in charge of the project. Kim determined that the company's current cost of capital is 10.5 percent. hundred. She believes that the company would be more valuable if it included debt in its capital structure, so she evaluates whether The company would have to issue debt to fully finance the project. Based on some conversations with executives of investment banks, she believes that the company can issue bonds at face value with a rate of 7 percent coupon. Also, based on his analysis, he considers that a capital structure with 70 would be optimal. percent equity capital and 30 percent debt. If the company's debt exceeds 30 percent your bonuses would obtain a lower rating and a much higher coupon, because the possibility of financial difficulties and associated costs. Stephenson has a corporate tax rate (state and federal) of 21 percent hundred.

QUESTION 1. Prepare Stephenson's market value balance sheet before he announces the purchase.