Corporate Financial Policy FIN$1422$: Second Assignment Optimal Recapitalization Decision and Capital Structure Theory Case Study Riyadh Company is an industrial firm currently financed entirely with common equity $($no debt$).$ The company generates annual Free Cash Flow to the Firm $($FCFF$)$ of $$90$ million, and this amount is expected to remain constant in perpetuity $($growth rate g $=0\%).$ The company has $10$ million shares currently outstanding. Its unlevered beta is $1\mathrm{.}00,$ the risk$-$free rate is $6\%,$ and the market risk premium is $6\%.$ The corporate tax rate is $25\%.$ The company is considering recapitalizing process by issuing debt and using the proceeds to repurchase shares. Two alternative capital structures are under evaluation: Alternative Debt Weight $($wd$)$ Cost of Debt $($Kd$)$ Use of Proceeds Option $130\%8\mathrm{.}5\%$ Option $250\%$ Share repurchase $12\mathrm{.}0\%$ Required: $1.$ For each recapitalization alternative: Share repurchase $$ Compute the levered beta using the Hamada equation. $$ Estimate the cost of equity using CAPM. $$ Compute the WACC. $$ Estimate the firm value using the growing perpetuity FCFF model. $$ Calculate the number of shares repurchased and the remaining number of shares. $$ Determine the share price after recapitalization. $2.$ Identify which alternative maximizes: $$ The firm value $$ The share price $3.$ Recommend the optimal capital structure for Riyadh Company based on your analysis and Capital Structure Theory.