ABC Inc. and XYZ Inc. are two otherwise identical firms except their capital structures. Here is some relevant data:

Both firms generate EBIT $20, 000 annually

ABC has 10, 000 outstanding shares, and the price per share is $10

XYZ has 20, 000 outstanding shares, and the price per share is S7

XYZ'S current debt value is $25 000

The beta of ABC'S stock is currently 2.76

The beta of XYZ'S stock is currently 71/35

The cost of debt for both firms is 2%

The corporate tax rate is 20%

Ignore personal taxes and costs associated with financial distress

Assume both CAPM and EMH hold

ABC is considering issuing debt and using the proceeds to repurchase equity. After the transaction is complete, the beta of its stock will increase to 3.4. How many shares will be repurchased as a result of this transaction?

Question 2: MM Propositions (20 pt) ABC Inc. and XYZ Inc. are two otherwise identical firms except their capital structures. Here is some relevant data: . Both firms generate EBIT = $20, 000 annually . ABC has 10, 000 outstanding shares, and the price per share is $10 . XYZ has 20, 000 outstanding shares, and the price per share is $7 . XYZ's current debt value is $25, 000 . The beta of ABC's stock is currently 2.76 . The beta of XYZ's stock is currently . The cost of debt for both firms is 2% . The corporate tax rate is 20% . Ignore personal taxes and costs associated with financial distress . Assume both CAPM and EMH hold ABC is considering issuing debt and using the proceeds to repuchase equity. After the transaction is complete, the beta of its stock will increase to 3.4. How many shares will be repurchased as a result of this transaction