Question: Drisk Limited has a debt/equity ratio of 3/2. It has 10,000,000 shares outstanding trading at $30 each. Its debt is perpetual with a coupon rate

Drisk Limited has a debt/equity ratio of 3/2. It has 10,000,000 shares outstanding trading at $30 each. Its debt is perpetual with a coupon rate of 7% and is trading at par. Drisk expects to have EBIT of $100,000,000 per year in perpetuity. Drisk is planning to payoff $100,000,000 of its debt. It will issue
sufficient number of common shares and will use the cash proceeds to pay off the debt. After the repurchase of debt, it will maintain the new capital structure indefinitely. Drisk's corporate tax rate is 40%

a. What are Drisk's current value, cost of equity and the rWACC ?
b. What is the Drisk's value after the announcement of the debt repurchase?
c. How many shares of stock will Drisk issue?
d. After the capital restructuring has taken place, what will be Drisk's
1. Total equity
2. Number of shares outstanding
3. Price per share
4. Cost of equity
5.rWACC

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