[ 7. Aaron Rocks Inc. is currently traded at $45/share with 8 million shares outstanding, and it has $200 million long-term debt. The probability of default is 10% at current debt levels. In the event of default, Aaron Rosenblum, the CEO of Aaron Rocks, estimates that the firm would incur direct and indirect costs having a present value of $50 million. Now the firm is considering the sale of $100 million in common equity at a price of $40 per share. The proceeds of this stock issue would be used entirely to reduce the firm's long-term debt. Aaron estimates that the probability of default would fall to 2% following the new stock issue. The corporate tax rate is 21%. (a) What will be the net impact of the stock issue on the total firm value? (b) What will be Aaron Rocks' stock price after the equity issue is announced? (c) What will be the stock price after completion of the equity issue? [ 7. Aaron Rocks Inc. is currently traded at $45/share with 8 million shares outstanding, and it has $200 million long-term debt. The probability of default is 10% at current debt levels. In the event of default, Aaron Rosenblum, the CEO of Aaron Rocks, estimates that the firm would incur direct and indirect costs having a present value of $50 million. Now the firm is considering the sale of $100 million in common equity at a price of $40 per share. The proceeds of this stock issue would be used entirely to reduce the firm's long-term debt. Aaron estimates that the probability of default would fall to 2% following the new stock issue. The corporate tax rate is 21%. (a) What will be the net impact of the stock issue on the total firm value? (b) What will be Aaron Rocks' stock price after the equity issue is announced? (c) What will be the stock price after completion of the equity issue