4.

Macbeth Spot Removers is entirely equity financed with values as shown below:

Data
Number of shares		1,800
Price per share	$	18
Market value of shares	$	32,400

Although it expects to have an income of $2,300 a year in perpetuity, this income is not certain. This table shows the return to stockholders under different assumptions about operating income. We assume no taxes.

	Outcomes
Operating income ($)	1,300	1,800	2,300	2,800

Suppose that Macbeth Spot Removers issues only $3,780 of debt and uses the proceeds to repurchase 210 shares. The interest rate on the debt is 10%.

a. Calculate the equity earnings, earnings per share, and return on shares for each operating income assumption. (Input all values as a positive number. Round your "Earnings per share" answers to 2 decimal places. Enter your "Return on shares" answers as a percent rounded to 2 decimal places. Round the other answers to the nearest whole number.)

	Outcomes
Operating income ($)
Interest
Equity earnings ($)
Earnings per share ($)
Return on shares (%)

b. If the beta of Macbeth's assets is .96 and its debt is risk-free, what would be the beta of the equity after the debt issue? (Round your answers to 2 decimal places.)

All-equity beta
Debt beta
D/E ratio
Equity beta