9.) Kohwe Corporation plans to issue equity toraise $50 million to finance a new investment. After makingthe investment, Kohwe expects to earn free cash flows of $10million each year. Kohwe currently has 5 million sharesoutstanding, and it has no other assets oropportunities. Suppose the appropriate discount rate forKohwes future free cash flows is 8%, and the only capitalmarket imperfections are corporate taxes and financial distresscosts.

a.) What is the NPV of Kohwesinvestment?

b.) What is Kohwes share pricetoday?

Suppose Kohwe borrows the $50 million instead. Thefirm will pay interest only on this loan each year, and it willmaintain an outstanding balance of $50 million on the loan. Suppose that Kohwes corporate tax rate is 40%, andexpected free cash flows are still $10 million eachyear.

c.) What is Kohwes share price today if theinvestment is financed with debt?

Now suppose that with leverage, Kohwes expectedfree cash flows will decline to $9 million per year due to reducedsales and other financial distress costs. Assume that theappropriate discount rate for Kohwes future free cash flowsis still 8%.

d.) What is Kohwes share price today giventhe financial distress costs of leverage?