LeCompte Learning Solutions is considering making a change to its capital structure in hopes of increasing its value. Currently it has no debt. With the new capital structure, the company's capital structure will consist of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Before-tax cost of debt Bond rating 0.20 7.2 0.30 8.0 0.40 BBB The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is (rM - TRF) 6%. LeCompte estimates that if it had no debt its beta would be 1.0. The company's tax rate is 21%. EBIT of the firm is $500,000 and the firm has no investment in operating capital. The number of common stock shares outstanding is 100,000. The firm will use the proceeds from bond issuance to repurchase stocks. a) On the basis of this information, what is LeCompte's optimal capital structure, and what is the firm's levered beta, cost of equity, and cost of capital at each level of debt? b) Determine the firm value, debt amount, stock price, and number of shares outstanding at each level of debt. c) What is the optimal capital structure? d) For the optimal capital structure, show the anatomy of recapitalization, and determine what is the stock price when: a) before debt issuance, b) after debt issuance but before repurchase, and 3) after repurchase of stocks? LeCompte Learning Solutions is considering making a change to its capital structure in hopes of increasing its value. Currently it has no debt. With the new capital structure, the company's capital structure will consist of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Before-tax cost of debt Bond rating 0.20 7.2 0.30 8.0 0.40 BBB The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is (rM - TRF) 6%. LeCompte estimates that if it had no debt its beta would be 1.0. The company's tax rate is 21%. EBIT of the firm is $500,000 and the firm has no investment in operating capital. The number of common stock shares outstanding is 100,000. The firm will use the proceeds from bond issuance to repurchase stocks. a) On the basis of this information, what is LeCompte's optimal capital structure, and what is the firm's levered beta, cost of equity, and cost of capital at each level of debt? b) Determine the firm value, debt amount, stock price, and number of shares outstanding at each level of debt. c) What is the optimal capital structure? d) For the optimal capital structure, show the anatomy of recapitalization, and determine what is the stock price when: a) before debt issuance, b) after debt issuance but before repurchase, and 3) after repurchase of stocks