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Company A is currently an all-equity firm with an expected return of 16.18%. It is considering borrowing money to buy back some of its existing shares, thus increasing its leverage. Suppose the company borrows to the point that its debt-equity ratio is 1.35. With this amount of debt, the debt cost of capital is 7.59%. What will be the expected return of equity after this transaction?

a) Suppose Microsoft has no debt and a WACC of 10.26%. The average debt-to-value ratiofor the software industry is 1.37%. What would be its cost of equity if it took on the aver-ageamount of debt for its industry at a cost of debt of 6.01%?

b) Company A had EBIT of $409,609,300 in 2019. In addition, the company had interest expenses of $146,337,343 and a corporate tax rate of 42.41%. What was the company’s net income?

c) Company A had EBIT of $387,171,082 in 2019. In addition, the company had interest expenses of $148,908,981 and a corporate tax rate of 44.52%. What was the company’s net income and interest payment value?