Use the following to answer questions 1-5:

A firm has an expected perpetual EBIT = $4,000. The unlevered cost of capital = 15% and there are 20,000 shares of stock outstanding. The firm is considering issuing $8,800 in new par bonds to add financial leverage to the firm. The proceeds of the debt issue will be used to repurchase equity. The cost of debt = 10%, and the tax rate = 34%.

1. What is the value of the firm before the restructuring? Assume there are no taxes.

A) $15,930

B) $17,600

C) $18,519

D) $26,667

E) $30,000

2. What is the value of the firm before the restructuring?

A) $15,930

B) $17,600

C) $18,519

D) $26,667

E) $30,000

3. What is the value of the firm after the restructuring?

A) $15,930

B) $17,600

C) $18,519

D) $20,592

E) $22,461

4. What is the value of the equity after the restructuring?

A) $11,792

B) $12,600

C) $12,819

D) $13,592

E) $16,461

5. What is the cost of equity after the restructuring? Assume the firm's market value is $20,592 after the restructuring.

A) 14.8%

B) 17.5%

C) 18.4%

D) 20.0%

E) 22.5%