Big Blue Banana (BBB) is a clothing retailer with a current share price of $10.00. It has no debt and 25 million shares outstanding. Now suppose that BBB announces plans to increase its leverage by borrowing $250 million and using the proceeds to repurchase shares.

Assuming perfect capital markets, what is the firm value for BBB after this announcement?

Suppose that BBB pays corporate taxes of 35% and that shareholders expects the change in debt to be permanent. Assume that capital markets are perfect except for the existence of corporate taxes. What is the value of BBB after this announcement?

Suppose that BBB pays corporate taxes of 35% and that shareholders expects the change in debt to be permanent. Assume that capital markets are perfect except for the existence of corporate taxes and financial distress costs. If the price of BBB's stock decreases to $8 per share following the announcement, then what is the present value of BBB's financial distress costs?