Shares outstanding 8,700,000 Share price $ 46.50 Purchase price of land $ 65,000,000 Perpetual earnings increase $ 14,000,000 Current cost of capital 12.50% Cost of new debt 8% Optimal equity weight 70% Optimal debt weight 30% Tax rate 21% Output area: 1) If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. 2) Assets $ 79,000,000 Equity ? Total assets ? Debt & Equity ? 3) a) Perpetual aftertax earnings ? NPV of purchase ? b) Balance Sheet Old assets ? NPV of project ? Equity ? Total assets ? Debt & Equity ? New share price ? Shares to issue ? c) Balance Sheet Cash ? Old assets ? NPV of project ? Equity ? Total assets ? Debt & Equity ? Total shares outstanding ? Share price ? d) PV of earnings increase ? Balance Sheet Old assets ? PV of project ? Equity ? Total assets ? Debt & Equity ? 4) a) Value of levered company ? <---VL = VU+TC*D Note*: TC = Tax rate b) Balance Sheet Value unlevered ? Debt ? Tax shield value ? Equity ? Total assets ? Debt & Equity ? Stock share price ? 5) Which method of financing maximizes the per share stock price of Stephenson's equity?