Hightower Electronics plans to announce that it will issue $1.9M of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 5%. The company is currently all-equity and worth $6.7M with 290000 shares of common stock outstanding. After the sale, the company will maintain the new capital structure indefinitely. The annual pretax earnings of $1.32M are expected to remain constant in perpetuity. The tax rate is 21%.

1. What is the expected return on the companys equity before the announcement of the debt issue?
2. Construct the companys market value balance sheet before the announcement of the debt issue. What is the price per share of the firms equity?
3. Construct the companys market value balance sheet immediately after the announcement of the debt issue.
4. What is the companys stock price per share immediately after the repurchase announcement?
5. How many shares will the company repurchase as a result of the debt issue? How many shares of common stock will remain after the repurchase?
6. Construct the market value balance sheet after the restructuring.
7. What is the required return on the companys equity after the restructuring?