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Yerba Industries is an​ all-equity firm whose stock has a beta of 0.50 and an expected return of 18 %. Suppose

it issues new​ risk-free debt with a 5 % yield and repurchase 50 % of its stock. Assume perfect capital markets.

a. What is the beta of Yerba stock after this​ transaction?

b. What is the expected return of Yerba stock after this​ transaction?

Suppose that prior to this​ transaction, Yerba expected earnings per share this coming year of $ 1.50​, with a forward​ P/E ratio​ (that is, the share price divided by the expected earnings for the coming​ year) of 11. 

c. What is​ Yerba's expected earnings per share after this​ transaction? Does this change benefit the​ shareholder? Explain.

d. What is​ Yerba's forward​ P/E ratio after this​ transaction? Is this change in the​ P/E ratio​ reasonable? Explain.

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