Your company currently has a total market value $($debt and equity$)$ of $$500$ million. Your capital

structure is $25\%$ debt and $75\%$ equity. You are profitable and expect to continue to be so going forward.

You are considering a debt$-$equity swap in which you would issue $$30$ million in $3\%$ coupon debt and use

the proceeds to repurchase $$30$ million in equity $($there would be no transaction costs$).$

a$.$ What is the annual interest tax shield from the new debt? If you plan to make the new $$30$ million in

debt permanent, then what will be the new value of your company after the swap? How will this value

be divided between debt and equity? $[9]$

b$.$ Assume that before the swap, your stock$$s beta was $1\mathrm{.}4.$ What will it be after the swap? $[6]$

c$.$ What will your after$-$tax WACC be after the swap? $[7]$