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The market-risk-premium is estimated at 6% and the risk-free rate at 4%. JetBlue has historically operated with zero net debt in its financial structure. Based on historical data, you estimate that JetBlue had an equity beta of 1 under its old financial policy. Cash flow for JetBlue is estimated at $40 million next year (t=1) and is expected to grow at 2% for all future years. JetBlue has 100 million shares outstanding. Today the CFO of JetBlue announced an unexpected levered recapitalization to be implemented next week. The flotation of the debt is a complete surprise to the market. According to the announcement, JetBlue will issue a 30 year bond with annual coupons equal to 7% of face value. The total face value of debt is $200 million, and the bond will be priced to yield 7% at the time of flotation. The net proceeds raised from the sale of the bond will be distributed to shareholders as a one-time special dividend next week, when the recapitalization is implemented. This is a private placement of debt and there are no underwriting fees. The covenants in the bond prohibit JetBlue from issuing any additional debt during the life of the bonds, so no other debt market transactions are anticipated. JetBlue faces an expected corporate income tax rate of 50% over the next 30 years. The market does not expect the debt flotation to create any costs of financial distress or bankruptcy risk. What is the old share price and what will be the new share price immediately after the announcement assuming no other debt issuances are expected?

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