Pear Inc. has an equity beta of 2. The expected market return is 20% and the risk free rate is 5%. The firm is financed half through equity and half through debt. Assume perfect capital markets. 1....

Pear Inc. has an equity beta of 2. The expected market return is 20% and the risk free rate is 5%. The firm is financed half through equity and half through debt. Assume perfect capital markets.

1.
Assume Pear’s management decides to decrease leverage to 1/3 of firm value. Estimate Pear’s cost of equity, cost of debt and cost of capital. Explain your workings

2. Assume Pear is expected to generate a cash flow of $300 million next year. This cash flow will grow in perpetuity at a rate of 10%. The capital structure is as in question 1 above. Pear has 10 million shares outstanding. Calculate Pear’s share price. Explain your workings.