DA Inc. is currently an all-equity firm, with a value of $500. It has 25 shares outstanding. The EBIT is 153.85 per year forever. The tax rate is 35%. The payout is 100%. It is planning to do a capital restructuring by issuing $200 of perpetual debt, costing 10% and use the proceeds to repurchase stock.

- What is the cost of unlevered equity? 

- How many shares will it repurchase? At what price? 

- What is the cost of levered equity? Confirm your answer by both computing the PV of all cash flows to shareholders at levered equity cost and using MMII. 

Answer rating: 100% (QA)

To answer all parts of the question lets break it down step by step 1 What is the cost of unlevered equity Unlevered cost of equity refers to the retu... View the full answer