Zetatron expects free cash flow of DKK 170 million each year. Zetatron is an all-equity financed firm (before t=0). The number of outstanding shares is 15 million. Its unlevered cost of equity is 10%. All outstanding shares of the firm are listed on the Stock Exchange.

The firm is now (t=0) considering changing its capital structure by borrowing DKK 200 million using permanent debt. There are no transaction costs (fees, commissions etc.) related to the debt. After this, the firm will forever refrain from taking out any further debts. The debt will be used to repurchase some of the existing shares in the firm immediately after t=0.

The firm's marginal tax rate is assumed to remain constant at 25%. It is also assumed that corporate tax is the only imperfection in the capital market. Furthermore, it can be assumed that the firm's EBIT in all periods exceeds interest costs, which are fully deductible.

Problem

1. Calculate the market value of unlevered equity just before the public disclosure of the recapitalization plan.

2. Prepare the market value balance sheet of Zetatron's main groups of assets and liabilities and their values at this specific time.