115. ( 22 points) HUFS Corp.'s CFO estimates that the firm expects to have a free cash flow in the coming year of 126 million. Assume that this company lasts fonever and never goes bankrupt. The growth rate of this company is 0%. In other words, the company's free cash flow will remain constant over time. The risk-free rate is 3%. The market risk premium (E[RMkt]Rf) is 6%, and the beta of HUFS stock is 1.5. The corporate tax rate is 30%. (a) ( 5 points) At this moment, HUFS is 100% equity firm. What is the total value of HUFS? (Hint: total firm value is the present value of all the free cash flows) (b) ( 7 points) Now, HUFS attempts to change its capital structure. It will borrow $350 million on a permanent basis and use the funds to "repurchase" shares. In other words, HUFS will buy back shares and reduce stockholder's equity by $350 million. The cost of debt is 3%. Then, what is the value of HUFS now? 11 (c) (4 points) After the firm issue the debt in b), however, the cost of levered equity becomes 14.74%. What is the after-tax WACC (weighted average cost of capital)? (d) (6 points) Compute the total value of a levered firm by discounting the free cash flows at the after-tax WACC. Compare the answer with that of (b)