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4. ABC Corporation is currently an all equity firm and it plans to raise $100 to finance a new investment. After making the investment, ABC
4. ABC Corporation is currently an all equity firm and it plans to raise $100 to finance a new investment. After making the investment, ABC expects to earn free cash flows of $20 each year. Suppose these cash flows are riskless, the risk-free interest rate is 10%, and capital markets are perfect. ABC currently has 100 shares outstanding, and it has no other assets or opportunities. Suppose part of the $100 investment is financed with debt and the rest with equity. In particular, ABC issues debt which pays $2 each year to the debt holders in perpetuity. How many new shares must ABC issue to finance this investment
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