Supertrade shares after the change in its capital structure

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Reference no: EM13933442

Suppose that the Modigliani-Miller assumptions hold, and we have no taxes. Supertrade Inc. is currently a fully equity financed company. It has 10,000 shares with a price of $200 each. The return on its shares is currently 10%. Supertrade decides to buy back 5000 of its shares, and borrows the necessary cash. The debt has a required return on 5%. What is the expected return on Supertrade shares after the change in its capital structure? Show your working

Reference no: EM13933442

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