Suppose that the net income view were to be correct in Problem 1. Describe a profitable investment strategy for investors in the company’s bonds and equity if the company were to reduce its debt. What does this strategy imply for the net income view?

Data From Problem 1:-

The CFO of NET INC Ltd. believes that the company’s cost of equity is 11%. The company’s expected borrowing rate is 7%, and it pays Corporation Tax at 30%. One-half the company’s financing is debt.