Beta plc is an all-equity firm with 500,000 shares of equity outstanding. The current price per share is 20. Beta is planning to announce that it will issue 5 million of perpetual bonds and use the proceeds to repurchase equity. The required return on the bonds is 6%. After the sale of the bonds, Beta will maintain the same capital structure indefinitely. The company currently generates annual pre-tax earnings of 1 million. This level of earnings is expected to remain constant in perpetuity. The company is subject to 20% corporate tax rate. Assume that there are no transaction costs or financial distress costs.

What is the expected return on Betas equity before the announcement of the debt issue?

How many shares will the company repurchase as a result of the debt issue?

What is the required return on Betas equity after the restructuring?