M&M Pizza

All values are in Millions except ratios, percentages, DPS and MPS

Number of shares Shares Repurchased MV Debt /Equity

Before Debt 62.5 0
After taking debt for share repurchase 42.5 20 0.471

Cost of debt 4%
Cost of equity 8%
Risk Premium (Rm - Rf) 5%
Rf 4%
Tax Rate 20%

Observations
1)WACC declined post the repurchase since cost of debt was less than the cost of equity
2) DPS decreased post share repurchase
3) However, MPS did not increase post the repurchase as estimated by Miller
MV Debt/Total CapitMV Equity/Total Capital Unlevered Beta Levered Beta WACC Net Income
0.00% 100.00% 0.8 0.8 8.0% 125
32.02% 67.98% 0.8 1.1 6.5% 105
Total Dividends DPS ($) MPS ($) MV Equity MV Debt
125 2 25 1562.5 0
105 2.47 25 1062.5 500
Check 0.470588