A. Wildcat is an oil and gas exploration company that is operating two active oil fields with a current market value of $200 million each. A large oil company has offered Wildcat a speculative project in exchange for one of their active oil fields. With this speculative project, there is a 10% chance that Wildcat will discover a major new oil field that would offer a cash flow with the net present value of $1200 million, a 15% chance that Wildcat will discover a productive oil field that would a cash flow with the net present value of $600 million, and a 75% chance that Wildcat will not discover oil at all. Wildcat has debt with its current market value of $500 million. (i) What is the expected payoff to debt holders if Wildcat accepts the offer? (ii) What is the expected payoff to equity holders if Wildcat accepts the offer? (iii) Briefly explain whether or not equity holders would like to accept this offer? B. State whether each of the following statements is true or false, and briefly explain why. (i) Although indirect costs of bankruptcy are difficult to measure accurately, they are typically much smaller than the direct costs of bankruptcy. (ii) An overinvestment problem occurs when shareholders have an incentive to invest in risky positive-NPV projects. (iii) The idea that managers who perceive the firm's equity is underpriced will have a preference to fund investment using retained earnings, or debt, rather than equity is known as the signaling theory of debt. (iv) A firm's stock price often increases on its announcement of a debt issue. (v) A firm's stock price often increases on its announcement of an equity issue. (vi) The trade-off theory of capital structure are better than the pecking order theory of capital structure because the trade-off theory suggests that firms appear to have an optimal capital structure