Only accept hand$-$written assignment. Use pen and paper, ipad or tablet, save as pdf file and upload.

After uploading your assignment, download and open it to make sure that the file is not corrupted.

Please keep at least $2$ decimal points for dollar amounts and at least $4$ significant digits for rates.

Question $3$

DTC Inc. has expected EBIT of $$14,000$ per year forever. There are $4,000$ shares outstanding, and the

stock price is $$25.$ It currently has $$85,000($par value$)$ perpetual debt that pays $4\%$ annual coupon and is

trading at $125\%$ of par. The tax rate is $20\%.$

$($a$)$ Calculate the cost of equity, the cost of unlevered equity and the WACC.

$($b$)$ If DTC issued new perpetual debt of $$37,500$ to buy back shares, calculate the cost of equity, stock

price, WACC and number of shares outstanding.

$($c$)$ If DTC issued new stocks to redeem $$37,500$ market value of perpetual debt, calculate the cost of

equity, stock price, WACC and number of shares outstanding.