Please use the following information to answer the next THREE questions.

Maple Inc. is an all-equity firm with 4 million shares outstanding, priced at $20 each. The firm is considering borrowing $20 million at 8% interest rate and using the funds to buy back shares. Jane is a shareholder who owns 600 shares of Maple Inc. Assume a perfect capital market.

1. What is the debt-to-equity ratio in the proposed capital structure of Maple Inc.?

1. 1/5
2. 1/4
3. 1/3
4. 1/2
5. None of the above

2. Jane likes the payoffs under the proposed capital structure with $20 million debt. If the firm decides to stay all-equity, what must Jane do in order to receive the same payoffs as she would have had the firm moved to the proposed capital structure?

1. Borrow $3,000 from the bank and use the money to buy more shares
2. Borrow $4,000 from the bank and use the money to buy more shares
3. Sell 120 of her shares and deposit the proceeds in the bank
4. Sell 200 of her shares and deposit the proceeds in the bank

3. Alternatively, assume Jane likes the payoffs under the current capital structure. If the firm decides to adopt the proposed capital structure, what must Jane do in order to receive the same payoffs as she would have under the current capital structure?

1. Borrow $24,00 from the bank and use the money to buy more shares
2. Borrow $3,000 from the bank and use the money to buy more shares
3. Sell 120 of her shares and deposit the proceeds in the bank
4. Sell 150 of her shares and deposit the proceeds in the bank

Please use the following information to answer the next TWO questions.

Northern Energy is an all-equity firm with 96,000 shares outstanding and a firm value of $5 million. The company plans to pay out $840,000 in cash dividend. Assume a perfect capital market. Assume no events other than the payout may affect the stock price of Northern Energy.

1. What will be the stock price of Northern Energy after the cash dividend is paid?

1. $8.75
2. $43.33
3. $52.08
4. $60.83
5. None of the above

2. Now suppose instead of paying out $840,000 in cash dividend, Northern Energy would like to repurchase $840,000 worth of shares at the current stock price. What will be the number of shares outstanding after the share repurchase?

1. 76,615
2. 79,872
3. 96,000
4. 112,128
5. None of the above