Macbeth Spot Removers is entirely equity financed. Use the following information.

DataNumber of shares1,000Price per share$10Market value of shares$10,000Expected operating income$1,500Return on assets15%

Macbeth now decides to issue $5,000 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.5%, which is 2.5% above the risk-free interest rate.

a.What arer_Aandr_Eafter the debt issue?(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Return on assets= ____%

Return on equity = ____%

b.Suppose that the beta of the unlevered stock was .6. What will _A, _E, and _Dbe after the change to the capital structure?(Do not round intermediate calculations. Round your answers to 1 decimal place.)

Asset beta: ____

Debt beta: _____

Equity beta: _____