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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
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:
c) The stock price
c) The stock price
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