The UCR Corp expects an earnings of $100,000 every year forever. The company currently has no debt, and its cost of equity is 15 percent.

(a) If the corporate tax rate is 40 percent, what is the value of the company?

(b) UCR Corp has 10,000 shares outstanding. Suppose you observe that its shares are currently traded at a price of $50 per share. How will you react? What if the shares are traded at $30 per share? Explain your answers.

(c) Assume we live in a world of M-M Proposition 1. Now UCR Corp decides to restructure to achieve a debt ratio of 50%. This will not affect the earnings of the company. How will the value of the company change? Explain your answer. (Hint: no calculation needed; this part is independent of part (b) above.)