ABC company

ABC company, an all-equity company, has an expected before tax EBIT of $26 million per year in perpetuity. The expected market return is 10% and the risk free rate is 4%. The company equity beta is 1.5.

a) if there were no taxes, what would the value of the unlevered company be?

b.)if corporate taxes were 40% what would the value of the unlevered company be?

c1.)Suppose the company simultaneously sells $40 million in bonds with an 8% annual coupon , and buys back some of its shares with the proceeds of the sale. What will the value of the company and the value of the equity become? Taxes are the same as in question 2 above

c2.)what will the cost of equity for this levered firm be?

c3.)what will the weighted average cost of capital for this levered firm be