Lanley Monorails Inc. is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Lanley has a 100% payout rate, 1,500 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. Lanley Monorails is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds worth a total sum of $1,200 and a coupon rate and yield) of 3%. Assume that the tax rate is 0% If Lanley goes ahead with the repurchase, then what is the required return of stockholders after the repurchase is complete? 3.5.7% b.5.3% c. 5.1% 1.5.5% @e. 5.9% Consider two firms that are identical in every way except that one has $15,000 of debt and 500 shares of stock outstanding, while the other is all-equity and has 650 shares of stock outstanding. Assume that the debt is a perpetuity with annual coupons at the rate of 6%. What is each firms' earnings per share if EBIT is $7,5007 Assume a tax rate of 40% Leveraged All-Equity Firm Firm $7,500 $7,500 2 EBIT EPS a EPSL 6.92, EPSE - 6,92 b. EPSL. - 8.92, EPSE 6.92 CEPSL. - 792; EPSE =792 d. EPSL 6.92, EPSE -7.92 e. EPSL. - 792, EPSE -6.92