No Lights At Wrigley, Inc. (NLAW), is a Hong Kong–based corporation that sells sunglasses. The firm pays no corporate taxes, and its shareholders pay no personal income taxes. NLAW currently has 100,000 shares outstanding worth $50 each; the firm has no debt.

Consider three stockholders of NLAW, Ms. A, Ms. B, and Ms. C. All three women have good access to capital markets, so they can lend and borrow at 20 percent, the same rate at which the firm lends and borrows. The value of their holdings and their overall borrowing and lending positions are listed below.

NLAW desires a ratio of debt to total capital of 0.20. To meet that desire, suppose the firm issues $1 million in risk-free debt and uses the funds to repurchase 20,000 shares.
The three stockholders wish to keep the risk of their portfolios unchanged. Show the value of their holdings and their borrowing and lending positions after they have adjusted their portfolios.

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Ms. A Value of NLAW Shares $10,000 Ms. B 50,000 Ms. C 20,000 Total Borrowing $2,000 0 0 Total Lending $ 0 6,000 0