CEDM Inc. currently has 8,200 shares outstanding, selling at $15.4 per share. Its 10.4% annual coupon, perpetual debt has a par value of $67,000 and is trading to yield 8.9%. The present value of the financial distress costs is $11,100. The annual EBIT is expected to be $41,000 forever. The tax rate is 26%.

1. What is the unlevered firm value?
2. What is the unlevered cost of equity?
3. What is the cost of equity?
4. What is the weighted average cost of capital?
5. The company issues stocks to buy back half of the existing perpetual debt (assuming buying back at the market price of the debt). If the cost of equity changes to 17.4% and the cost of debt remains the same after the recapitalization, calculate the present value of financial distress costs under this new capital structure.