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Mwinenkoma & Mwinlanaa Electronics Plc (MMEP) has its Chief Financial Officer is having MMEP recapitalization plan. The officer wants to change the capital structure of the firm, MMEP, to have a major component of its capital structure as financial leverage from the all-equity financing structure. The price per share for BRC stands at 60 with an outstanding common shares of 500,000. The firms expected EBIT per year stands at 2,400,000 in perpetuity. On the recapitalization the firm has in its proposal that long-term debt will be issued at a value of 15,000,000 at an interest rate of 6.0%. Common stock numbering 250,000 shares will be repurchased with the proceeds valued at 15,000,000. Assuming market frictions like personal income tax or corporate income tax do not exist, estimate the equity expected return MMEP shareholders under the two capital structure positions, namely: the current all-equity and the recapitalization plan.

(ii) Assuming that last year MMEP Inc., issued out an IPO, to have its first common shares outstanding of 2 million with 0.25 as par value to prospective investors at a per share price of 15. MMEP earned 0.07 per share as net income in its first year of operations and declared 0.005 dividend per share. By the end of the year, the per share stock price of the company stood at 20. When the business operations end after one year, how can you prepare the equity account for MMEP Inc., and what is the market capitalization for the firm.

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