Assume you own 50% of an all equity company whose real assets generate a constant cash flow of $20 million per year. The companys management wishes to restructure the firms capital by using the proceedsof $100 million bond issue to undertake a share buyback of 50% of the firms equity. The discount rate is 10%. Corporate and personal debt both have a lending rate of 5%.

a) What is the pre-reconstruction value of the company?

b) What is the companys post reconstruction debt to equity ratio?

c) What is the companys post reconstruction return on equity?

d) If you are unhappy with managements decision to change the companys capital structure, what personal investment strategy could