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Mercer Corp. has 10 million shares outstanding and ​$103 million worth of debt outstanding. Its current...

Mercer Corp. has 10 million shares outstanding and ​$103 million worth of debt outstanding. Its current share price is $64. ​Mercer's equity cost of capital is 8.5%. Mercer has just announced that it will issue ​$383 million worth of debt. It will use the proceeds from this debt to pay off its existing​ debt, and use the remaining ​$280 million to pay an immediate dividend. Assume perfect capital markets.
a. Estimate​ Mercer's share price just after the recapitalization is​ announced, but before the transaction occurs.
b. Estimate​ Mercer's share price at the conclusion of the transaction. ​(Hint​: Use the market value balance​ sheet.)
c. Suppose​ Mercer's existing debt was​ risk-free with a 4.62% expected​ return, and its new debt is risky with a 4.88%expected return. Estimate​ Mercer's equity cost of capital after the transaction.
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