The NI Approach. Happy-Day Industries, Inc., is financed entirely with 100,000 shares of common stock selling at $50 per share. The firm’s EBIT is expected to be $400,000. The firm pays 100 percent of...

The NI Approach. Happy-Day Industries, Inc., is financed entirely with 100,000 shares of common stock selling at $50 per share. The firm’s EBIT is expected to be $400,000. The firm pays 100 percent of its earnings as dividends. Ignore taxes.

                (a) Using the NI approach, compute the total value of the firm and the cost of equity. (b) The company has decided to retire $1 million of common stock, replacing it with 9 percent long-term debt. Compute the total value of the firm and the overall cost of capital after refinancing.