You have recently been hired as a financial analyst for a children's toy manufacturing company. The company is growing a

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You have recently been hired as a financial analyst for a
children's toy manufacturing company. The company is growing and
has capital to invest in expansion projects. Currently, your
business is financed exclusively with equity – there is no debt.
The shareholders have however decided to consider the issue of debt
which would be used to buy back common shares, which will modify
the capital structure of the company and introduce a financial
leverage effect.
The current financial structure is as follows: the assets of the
company have a market value of $12 million. There are currently
400,000 shares outstanding and the stock price is $30 - there is no
debt.
Now suppose that the company informs you that its current
debt-free capital structure corresponds to a WACC of 10% which is
significantly higher than the return required of bondholders which
is 6%.
a) Redo the detailed calculation of the WACC according to
M&M's proposal II – repeat the formula for the calculation of
the WACC using the BR resulting from the restructuring.
b) If you are now asked to incorporate the effect of taxes into
your post-recapitalization WACC calculation and the retained tax
rate would be 35% – repeat the WACC calculation formula by
calculating the resulting ROE of restructuring.