SDG, Inc. is an all-equity firm. The firm's assets will generate $5 million of earnings before interest and taxes (EBIT) every year in perpetuity. SDG distributes all earnings available to stockholders immediately as dividends. The firm is subject to a corporate tax rate of 25%.

The firm's cost of capital is 15%.

a. What is the total value of SDG? SDG is considering issuing $10 million of perpetual par bonds at 7.5% interest rate. The firm will use the proceeds of the bond sale to repurchase equity. 


b. What is the total value of SDG after the refinancing?


c. What is the value of levered equity after the refinancing? Excel file is OK to attach.