Poulsbo Manufacturing Inc is currently an all-equity firm that pays no
taxes. The market value of the firm's equity is 3 million. The cost of
this unlevered equity is 15 percent annum. poulso plans to issue
600000 in debt and use the proceeds to repurchase stock. the cost of
debt is 4% semi annually.
a. After Poulsbo repurchases the stock, what will the firm's weighted
average cost of capital be?
b. After the repurchase, what will the cost of equity be? explain.
c. using MM-Proposition 2, what will be the WACC after the repurchase?

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