Assume (t_e= .35):

And then $800000,000 of .08 debt is substituted for the stock (give to shareholders).
An investor in the company owned.3 ofthe stock before the restructuring. Design an investment strategy for the investor, so that the investor is no worse offwith normal operations than with an all common stock firm. Give the amounts to be invested in each type of security.

a. Invest in firm's debt $_________ Invest in firm's stock $___________

b. There are no explicit banking costs. If the investor fears bankruptcy and wants to maintain a .3 ownership with bankruptcy, the investor should own:

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(1-.35)100,000,000 V = $650,000,000. .10