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Home Depot (HD) has a current market capitalization of 193.45$ billion and a beta of 0.4. HD currently has the risk free debt as well. Suppose HD issues a new risk free debt 59.73$ billion with a 5% yield plus 5$ billion cash to repurchase its stocks. The current market return is 13%. Assume perfect capital markets.
1) What is the beta of HD stock after this capital restructure?
2) What is the expected return of HD stock after this transaction?
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This is to avoid round-off errors. You will calculate the average beta (or simply beta) and the percent return after finding the optimal solution.
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