As Twitters new CEO, Elon Musk is considering whether he can increase the value of the firm by using a greater proportion of debt. Suppose Musk assumes that Twitter will generate an EBIT of $10 million in perpetuity regardless of its capital structure. The company currently has a market value of debt of $50 million and a market value of equity of $50 million, but he is considering issuing $25 million in additional debt to repurchase equity.

Assuming no taxes and a 10% cost of debt, the cash flow to assets from the original case of $50 million in debt and $50 million in equity will be ___________ while the cash flow to shareholders will be ___________ and the cash flow to bondholders will be ___________.

In the case of the proposed debt restructuring (assume no taxes and a 10% cost of debt), the cash flow to assets when the company has $75 million in debt and $25 million in equity will be __________ while the cash flow to shareholders will be __________ and the cash flow to bondholders will be __________. In the case with no taxes or bankruptcy costs, capital structure is ___________ to a firms overall value.

A. $10 million; $5 million; $5 million; $10 million; $2.5 million; $7.5 million; irrelevant

B. $10 million; $5 million; $5 million; $10 million; $2.5 million; $7.5 million; relevant

C. $10 million; $5 million; $5 million; $10 million; $7.5 million; $2.5 million; irrelevant

D. $10 million; $5 million; $5 million; $2.5 million; $2.5 million; $7.5 million; relevant