Vader Corp. is a firm that generates a perpetual EBIT of $50,000 per year. The firm currently has no debt and has 50,000 shares outstanding. The cost of capital is 10%. The firm is thinking of issuing $200,000 in debt and using the proceeds to repurchase equity. The firm could borrow the funds at 8%.

a) Assume that Vaders corporate tax rate is 40%. If the firm does the planned recapitalization, what would be the required return on equity and its overall weighted average cost of capital, respectively?

Answer is 11.33%; 7.9% - need an in-depth solution.

b) Assume now that once Vader completes the recapitalization, it will have a beta of 4. What would have been the beta of the firm while the firm was all-equity (i.e. what is the firms unlevered beta)? Continue to assume that Vader faces a tax rate of 40%.

Answer is 1.89 - need an in-depth solution.