finance question

[REVIREB]

Rayburn Manufacturing is currenly an all-equity firm. The firms's equity is worth $2 million. The cost of that equity is 18%. Rayburn pays no taxes. Rayburn plans to issue $400,000 in debt and to use the proceeds to repurchase stock. The cost of debt is 10%.

a. After Rayburn repurchases the stock, what will the firms' overall cost of capital be?

b. After the repurchase, what will the cost of equity be?

Explain result in (b).

[snoteater]

Do your own homework nobby.

[WoWo]

a. �2.65 Million

b. �0.65 Million, Overall cost minus the purchase costs.