33. Costs of Financial Distress. Let's go back to the Double-R Nutting Company. Suppose that Double-R's bonds
Question:
33. Costs of Financial Distress. Let's go back to the Double-R Nutting Company. Suppose that Double-R's bonds have a face value of $50. Its current market-value balance sheet isWho would gain or lose from the following maneuvers? (LO3)
a. Double-R pays a $10 cash dividend.
b. Double-R halts operations, sells its fixed assets for $6, and converts net working capital into $20 cash. It invests its $26 in Treasury bills.
c. Double-R encounters an investment opportunity requiring a $10 initial investment with NPV = $0. It borrows $10 to finance the project by issuing more bonds with the same secu- rity, seniority, and so on, as the existing bonds.
d. Double-R finances the investment opportunity in part
(c) by issuing more common stock.
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus