Unlevered Firm Levered Firm Balance Sheet I Balance Sheet | Assets Liabilities Assets Liabilities 100,000 0 Equity Equity 1 00,000 100,000 100,000 100,000 100,000 Rd = 5V0 Tax rate = 35% Price per share: 10 Number of shares: 10,000 Income Statement Income Statement EBIT 50,000 EBIT 50,000 Interest expense 0 Interest expense I I Taxable income 50,000 Taxable income Taxes - l 7, 500 Taxes Net Income 32,500 Net Income EPS EPS ROE ROE You have decided to issue debt and buy back 1f2 of your company's stock. 1. Restate the balance sheet and income statement to reect this transaction. 2. What is the value of the unlevered rm? 3. What is the PV of the tax shield? 4. Should you do this transaction? Why or why not