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Capital Restructuring and Firm Value Cooke Co. Is a prominent consumer products firm. The company currently has 60,000 shares, stock price is $30 per...

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Capital Restructuring and Firm ValueCooke Co. Is a prominent consumer products firm. The company currently has 60,000 shares,stock price is $30 per share. The company's currently has long-term debt of $360,000 (0/Eratio Is 20%). Cooke's current EBIT is $240,000. Bob Webb, one of the company's senior vicepresident, pushers hard to increase the company's leverage. He argues that the company'sleverage is lower than most companies within the industry. At a recent meeting of the boardof director, he proposed to Issue $1 million debt to buy back outstanding shares. Cooke'scurrent credit rating is Al, but if the company borrows $1 million, It will be downgraded toBBB1. Exhibit 1 contains market information.1) What will be the:a) Cooke's share outstandingb] Cooke's stock pricec] Cooke's earing per share?Before and after the company issues $1 million debt and uses that proceeds tobuyback stocks?2) What is Cooke's current cost of equity and WACC? What would the cost of equity and WACCif the company issues $1 million debt and users the proceeds to buyback stocks?3) Discuss about the trade off theory, what are the costs and benefits associated with debtfinancing? Do you agree or disagree with Bob Webb?]Exhibit 1Capital Market ConditionsU.S. Treasury ObligationsYield10 year notes3.0%Corporate Debt Obligations (above risk free rate)Credit Spread2.0%3.0%Other informationMarket risk premium5.5%
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