HERE IS A SAMPLE SOLUTION WITH DIFFERENT VALUES, BE VERY CAREFUL MAKE SURE YOU USE THE VALUES FOR THE ABOVE QUESTION IN THE BELOW WORKING, WILL UPVOTE FOR CORRECT ANSWERS, PLS BE VERY CAREFULL.

Pump Water is a firm that exists in a world of almost perfect capital markets, where the only imperfection is the presence of corporate taxes. There exists federal government bonds in this world that currently yield a rate of return of \3.0 per annum compounded annually for all maturities. Like all other firms in this world, Pump Water pays corporate taxes on its profits to this government at a marginal rate of \40.0. After having recently completed a leveraged recapitalization where it converted from being an all-equity firm to one that is now \68.0 financed by debt, shares of Pump Water currently trade at a price of \\( \\$ 29.55 \\) each. The debt that was used to finance the leveraged recapitalization was issued at par and is expected to be a permanent part of the Pump Water's capital structure going forward (such that the company will only ever pay interest on this debt and never pay off the principal). Pump Water's annual operating income is expected to be constant for the foreseeable future. A) What was the price per share of Pump Water before its recent leveraged recapitalization? The price of Pump Water prior to its recent leveraged recapitalization was \\$ per share. (Round your answer to three decimal places) Full solution We are told that there is only one imperfection, which is corporate taxes. So the capital structure model we should be using to value the leveraged firm \\( (\\mathrm{VL}) \\) is: \\[ \\begin{aligned} V L & =V U+P V(\\text { Interest Tax Shields }) \\\\ & =\\text { Value of firm before recapitalisation }+ \\text { Debt*TaxRate } \\end{aligned} \\] We are told that the share price of the leveraged firm is \\( \\mathrm{VL}=\\$ 58.9 \\) and the firm is \61.0 debt financed. This means the market value of the debt, \\( D=58.9 * 0.61=35.929 \\). We are told that the corporate tax rate is \25.0. Hence the value of the unlevered firm, \\[ \\begin{aligned} V U & =V L-D * T \\\\ & =58.9-35.929 * 0.25 \\\\ & =49.918 \\end{aligned} \\] A correct answer is 49.918, which can be typed in as follows: 49.918