Dan Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firms debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of this debt is 9 percent per year. The firm expects to have an EBIT of $1.26 million per year in perpetuity and pays no taxes.

a.	What is the market value of the firm before and after the repurchase announcement?

b

What is the expected return on the firms equity before the announcement of the stock repurchase plan?

c.What is the expected return on the equity of an otherwise identical all-equity firm?

d.What is the expected return on the firms equity after the announcement of the stock repurchase plan?