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Global Pistons (GP) has common stock with a market value of $200 million and debt with a value of $147 million. Investors expect a 18%

image text in transcribed Global Pistons (GP) has common stock with a market value of $200 million and debt with a value of $147 million. Investors expect a 18% return on the stock and a 7% return on the debt. Assume perfect capital markets. a. Suppose GP issues $147 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? b. Suppose instead GP issues $41.36 million of new debt to repurchase stock. If the risk of the debt does not change, what is the expected return of the stock after this transaction? a. Suppose GP issues $147 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? If GP issues $147 million of new stock to buy back the debt, the expected return is %. (Round to two decimal places.) b. Suppose instead GP issues $41.36 million of new debt to repurchase stock. If the risk of the debt does not change, what is the expected return of the stock after this transaction? If GP issues $41.36 million of new debt to repurchase stock and the risk of the debt does not change, the expected return is \%. (Round to two decimal places.)

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