Remex $($RMX$)$ currently has no debt in its capital structure.

The beta of its equity is $1\mathrm{.}50.$ For each year into the indefinite future, Remex$$s free cash

flow is expected to equal $$25$ million. Remex is considering changing its capital structure by

issuing debt and using the proceeds to buy back stock. It will do so in such a way that it

will have a $30\%$ debt$-$equity ratio after the change, and it will maintain this debt$-$equity ratio

forever. Assume that Remex$$s debt cost of capital will be $6\mathrm{.}5\%.$ Remex faces a corporate tax

rate of $15\%.$ Except for the corporate tax rate of $15\%,$ there are no market imperfections.

Assume that the CAPM holds, the risk$-$free rate of interest is $5\%,$ and the expected return

on the market is $11\%.$

$($a$)$ Using the information provided, fill in the table below:

Debt Equity Ratio Debt Cost Equity Cost WACC

Before Change in K Structure

After Change K Structure

$($b$)$ Using the information provided and your calculations in part above, determine the value

of the tax shield acquired by Remex if it changes its capital structure in the way it is

considering