Assume that the corporate tax rate is zero, there are no transaction costs for issuing or trading securities, and the capital market is efficient. A firm is financed with A-rated bonds valued at $50 million and 12 million shares trading at $23/share. The firm issues $120 million of new bonds with the same seniority as the old bonds. Proceeds from the issue will be used to repurchase shares. Once the new bonds are issued, the firm's bond rating drops to BB ("junk"). The market value of the old bonds also drops 18%. Investors now believe that the firm's chance of financial distress and associated costs have increased so much that the expected present value of the firm's assets have dropped 4%. Question 1 What is the firm's share price after the new bonds are issued? (17 marks) Question 2 Given the calculations in Question 1., should the firm change its capital structure? Why or why not