Question
open start, an innovation software company, is an all-equity firm whose stock has a beta of 0.70 and an expected return of 18.50%. suppose it
open start, an innovation software company, is an all-equity firm whose stock has a beta of 0.70 and an expected return of 18.50%. suppose it issues new risk-free debt with a 6.50% yield and repurchases 5% of its stock. assume perfect capital market.
(a) what is the beta and the expected return of open start stock after this transaction?
(b) suppose that prior to this transaction, open start expected an earnings per share(EPS) this coming year of $4.50. what is open start's expected earnings per share after this transaction? does this change benefit shareholders? explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started