This Firm is an all-equity firm with a cost of capital equal to 16% and before-tax operating cash flows equal to $400 million per year. The firms tax rate is 30%.

a.) assuming that the operating cash flow is perpetuity, what is the value of the firm?

b.) suppose that the firm decides to engage in a debt for equity exchange offer (ie the firm replaces some of the equity with debt, but the asset base remains the same) Their investment banker suggest that they could issue $500 million in debt at a yield of 12%. What is the value of the levered firm?

c.) Find the WACC for the firm in part b

d.) what is the cost of levered-equity, for the firm in part b