Locomotive Corporation is planning to repurchase part of its common stock by issuing $4.65Mcorporate debt. As a result, the firm's debt-equity ratio is expected to rise from 25 percent to50 percent. The firm currently has $3.1 million worth of debt outstanding. The company's costof debt is 6.7 percent per year for both current and new debt. Locomotive Corporation pays no taxes.

a. Use a balance sheet to show what is the market value of the firm before and after the repurchase announcement?

b.If we assume an 8.99% return on assets, what is the expected return on the firm'sequity after share repurchase?

c.Is the return on equity you found in part b higher, lower or the same as the firm's returnon equity before the share repurchase.