In M&M$-$Land there are no corporate income taxes, bankruptcy costs, or agency costs. The market

value of Miller$-$Mart Corp$$s assets is $$40$ million. Miller$-$Mart has $15,000$ bonds outstanding. The

bonds are trading at par and their coupon rate is $6\%($each bond has a $$1,000$ face value and

coupons are paid annually$).$ Miller$-$Mart$$s $($levered$)$ equity cost of capital is rE $=8\%.$ Government

risk $$ free bills pay $3\%$ interest and the market risk premium in M&M$-$Land equals $5\%.$

a$.$ What is the beta of Miller$-$Mart stock? $($Hint: use the CAPM.$)$

b$.$ What is Miller$-$Mart$$s weighted average cost of capital $($rWACC$)?$

c$.$ What would Miller$-$Mart$$s weighted average cost of capital $($rWACC$)$ be if the firm were $100\%$

equity $$ financed?

d$.$ Suppose Miller$-$Mart sells $5,0006\%$ annual coupon bonds, increasing the number of Miller$-$

Mart bonds outstanding to $20,000,$ and uses the proceeds to repurchase shares. The new bonds

are sold at par. Calculate Miller$-$Mart$$s equity cost of capital $($rE$)$ after the refinancing.

e$.$ What is the beta of Miller$-$Mart stock after the refinancing? Comment on whether and why it

is higher or lower than the beta calculated in part $($a$).$