GeKay is now considering issuing $3 million in debt, and paying $150,000 yearly in interest at 5%, that it would keep rolling over "forever" (in perpetuity).
The proceeds would be used torepurchase stock. If GeKay were to go by and implement the debt issue & repurchase:
a. What would be the new value of the firm?
b. What would be the new value of the equity?