XYZ Inc. has a debt to equity ratio of 0.5, $20 000 of debt with an interest rate of 5%, 10 000 shares outstanding, a 10% expected returns on assets, and a 30% tax rate. Assume a constant amount of debt. Assume now that the company decides to increase its debt by $10 000 to repurchase stocks. Assume that the interest rate on debt remains unchanged. Compute the total value of the firm when the repurchase plan is announced. What is the value of equity and debt?

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