you have been asked by med parts inc. a medical device maker, for advice on whether they are using the gith mix of debt and equity to fund their operations. The firm has 120 million shares trading at 10$ a share and 300$ million in outstanding debt. The current levered beta for the firm is 1.10 and the pre -tax cost of borrowing is 6%. The marginal tax rate i 40% the risk free rate is 3% and the market risk premium is 4%.

A. Estimate the current cost of capital for the firm

B. You estimate the optimal debt ratio for the firm to be 40% and beileve that the cost of captial will be 8%, if you move to the optimal by borrwoing money and buying back shears. further, you estimate that the value of firm will increase by $70.68 million if you move to the optimal. If you buy back he shares at $10.25/ shares, estimate the increase in value per share for the remianing shares

B. Refer to the information and your answers from part (b). are you a shareholder better off or worse off selling shares back to the firm?