Big Blue Banana (BBB) is a clothing retailer with a current share price of $10.00 and with 25 million shares outstanding. Suppose that Big Blue Banana announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares. Assuming perfect capital markets, the share price for BBB after this announcement is:

suppose that BBB pays corporate taxes of 35% and that shareholders expects the change in debt to be permanent. Assuming that capital markets are perfect except for the existence of corporate taxes, the share price for BBB after this announcement is closest to: (Hint: use the TD formula to add the present value of the tax shield. Also note, at the time of announcement no repurchase program is started yet.)

assume that capital markets are perfect except for the existence of corporate taxes and financial distress costs. If the price of BBB's stock rises to $10.85 per share following the announcement, then the present value of BBB's financial distress costs is closest to:(Hint: remember based on the trade-off theory there is a trade-off between the benefit of tax shield and costs of financial distress. Put it another way, the reason the stock price did not raise to what you found in previous question is the existence of costs of financial distress)