XYZ Inc. is considering changing the companys capital structure. The book-value balance sheet includes the following assets and liabilities:

Current Assets: $1,000 & Debt: $2,500;

Net Fixed Assets: $4,000 & Equity: $2,500;

Total Assets: $5,000 & Total Liabilities: $5000 *Numbers are in millions of dollars*

Other Financial Information about XYZ Inc.:

XYZ Inc., debt is long-term bonds with a 10% coupon rate. The bonds are rated AA with a 12% Yield-to-Maturity of 12%, and the market value of the bond is 80% of par. The companys T-Bond rating is 8%

XYZ Inc. has 50 million shares outstanding, $80 is the current market value price per share. XYZ Inc. pays $4 per share in dividend, and has a price to earnings (P/E) ratio of 10. The companys stock has a beta of 1.2

XYZ Inc., will issue $3billion in new debt to repurchase its stock, which will change XYZ Inc. debt rating to CCC with a debt yield of 18%.

Questions: (show all calculations)

1. Calculate XYZ Inc. cost of equity after the company issues $3 billion in new debt to repurchase stock.

2. Determine XYZ Inc., Weighted Average Cost of Capital (WACC)

3. Calculate the companys new share price, if there is no cost of financial distress imposed on the firm.

4. What impact does financial distress have on XYZs, impact on current bondholders, and the impact on stock price?