Only anwser questions D and E. Please show work.

Question 1. You are a corporate finance analyst at a management consulting firm, which has been approached by a company for advice on its capital structure decisions. The company, Boston Turkey Inc., has been in existence for only two years, and its stock is currently trading at $20 per share (There are 100,000 shares outstanding. The following are the most recent financial statements of the company: Income Statement Revenues $1,000,000 Expenses 5400,000 Depreciation $100,000 EBIT $500,000 Interest Expense $100,000 $400,000 Taxable inco Tax S160,000 $240,000 Net Income Balance Sheet B 209 Current Assets $1,000,000 Accounts payable SS00.000 Land & Buildings 5500,000 Long Term Date 1.000.000 Property. Plant 1.300,000 Equity 100,000 SIS Equipment shares Total Assets $3,000,000 Total Lists & 5300000 Equity Due to its limited history, the beta of the stock cannot be estimated from past prices. You do have information about comparable listed firms and their betas - Firm Debt Equity Ratio Arizona's Baked Chicken LOS Battees Chicken 1.30 50% Eyepop's Chicken 10% Bob Roy Chicken & Fish 135 70% (The comparable firms all have the same tax rate as Boston Turkey). You can assume that the market risk premium is 5.5%. As general information, you have also collected data on interest coverage ratios, ratings and interest rate spreads, and they are summarized below: and Coverage Default Coverage Ratio Ratio less Spread over T- Rating greater than bund 0.00 AAA 9.65 AA 685 9.35 0.70 Firm Beta Debt Equity Rati 20% Arizona's Baked Chicken 1.OS Barbee's Chicken 1.20 SOM 0.90 10 Eyepop's Chicken Bob Roy Chicken & Fish 1.33 (The comparable firms all have the same tax rate as Boston Turkey). You can assume that the market risk premium is 5.5%. As general information, you have also collected data on interest coverage ratios, ratings and interest rate spreads, and they are summarized below: and Coverage Default Coverage Ratio Ratio less Spread over T- Rating greater than than bund AAA 9.65 0-30% AA 6,85 9.35 0.7096 A 5.65 6.85 A 4.49 5.65 1.25% A- 3.99 4.49 1.509 BBB 276 3.29 2.00% 2.12 2.76 2.50 + 1.87 2.17 3.0096 B 1.57 1.87 4.00 B- 1.27 1.57 5.00 COC 087 1.27 6.00% CC 0.67 OST 7.50 C 025 0.67 9.00 D -100000 12.00 The treasury bill rate is 3,00% and the treasury bond rate is 6.25%. What is the current cost of equity? What is your best estimate of the current after-tax cost of debt? (The company is not rated currently), Justify your answer. What is the current cost of capital? As part of your analysis, you are examining whether Boston Turkey should borrow $500,000 and buy back stock. If it does so, its rating will drop to A- If it does so, what will the new cost of equity be? How much will the stock price change if it borrows $500,000 and buys back stock