Stephenson Real Estate Company is an all-equity firm with 15 million shares of common stock outstanding worth $32.50 per share.

Stephenson Real Estate Company is an all-equity firm with 15 million shares of common stock outstandingworth $32.50 per share. Stephenson is planning to purchase a huge track of land in southeastern Texasfor $100 million. The land will subsequently be leased to tenant farmers, increasing Stephenson’s annualexpected pre-tax earnings by $25 million in perpetuity. The firm’s unlevered cost of equity capital (r0) is12.5%. Stephenson is subject to a corporate tax rate of 40%. The interest rate on Stephenson’s bonds is8% per annum.