Lindy's Accounting Services (LAS) Limited is financed entirely by common stock currently valued at

$26 per share and has a beta of 0.9. The company is expected to generate a level, perpetual stream

of earnings and dividends. The stock has a price earnings (P/E) ratio of 3 and their cost of equity is

5.2%. LAS now decide to repurchase half of their shares and substitute an equal value of debt which

has a beta of 0.7 and has a rate of return of 2.5%. Assume no taxes and that Modigliani and Miller

are correct calculate the following under the new capital structure:

a) The cost of equity (2 marks)

b) The overall cost of capital (1 mark)

c) The stock price (1 mark)

d) The beta of the stock (2 marks)