[yuting]

Company A wants to raise $100million fund his expansion, is expected to produce earning before interest and taxes of $50million per year in perpetuity. Company A has $16 million shares outstanding and following the expansion announcement these shares are trading at $25 per share. Borrow at a rate of 5% or to issue new equity at $25 per share.

a. if company A finances their expansion by issuing new stock, what will Company A's cost of equity capital be?
b. if company A finances their expansion by issuing $100 million in debt at 5%, what will Company A's cost of equity capital be?
c. show mathematically that the stock price of company A does not depend whether they issue new stock or borrow.