Your boss has asked you to evaluate a capital restructuring proposal. Your company Mankayane Milling Limited (MML) is an all-equity financed firm with expected perpetual operating profits (EBIT) of E25 000 000 and its unlevered cost of equity is 15%. The board is proposing a capital restructuring exercise which involves issuing fifty thousand 10% irredeemable bonds with a par value of E1000 each. The proceeds of the debt capital raised will be used to buy back shares in the firm. 50000 x 1000-50 000 The firm's expected perpetual operating profits will not be affected by the capital restructuring exercise. The applicable tax rate is 40%. Required: (a) Calculate the value of MML before and after the capital restructuring exercise. Vu YL 0.8.00 (9 marks) (b) With the aid of a fully-labeled diagram, show that the value of MML after the capital restructuring exercise is greater than before capital restructuring exercise. EV (10 marks) (c) Determine the value of MML's equity after capital restructuring exercise. wace (3 marks) (d) With the aid of a fully-labeled diagram, calculate and show the new or levered cost of equity and WACC after the capital restructuring exercise. (18 marks)

Question 3 [40 marks] Your boss has asked you to evaluate a capital restructuring proposal. Your company Mankayane Milling Limited (MML) is an all-equity financed firm with expected perpetual operating profits (EBIT) of E25 000000 and its unlevered cost of equity is 15%. The board is proposing a capital restructuring exercise which involves issuing fifty thousand 10% irredeemable bonds with a par value of E1000 each. The proceeds of the debt capital raised will be used to buy back shares in the firm. 500001000