Company X is currently all-equity financed and has no cash on hand. The company has assets in place and a single investment project available. The value of the assets in place depends on whether a recent cost-cutting initiative at the company was successful or not. Assets in place are worth $16M if the initiative was successful and $12M if it was unsuccessful. The CEO of the company knows whether the cost-cutting initiative was successful or not, but investors in the market do not. Investors believe that there is a 50% chance that it was successful and a 50% chance that it was unsuccessful. The project available to the company requires investing $8M today and will generate future cash flows with a present value of $12M (so the NPV of the project is $4M). The market is aware of the existence of the project as well as its cost and payoff. 4b) (7 points) Suppose that everything is exactly as in part (a), except that the distress costs are $80,000 instead of $8M. If you were the CEO of Company X, which one of the three options would you choose if you knew that the cost-cutting initiative was successful, and why? Which one would you choose if you knew the cost-cutting initiative was unsuccessful, and why? Hint: Note that the project continues to generate substantial value but that financial distress costs are small. Because of these factors and the fact that a company with a successful cost-cutting initiative will face equity underpricing, it is reasonable for investors to expect the company would invest in the project and finance the investment with equity if its cost-cutting initiative was unsuccessful but with debt if its cost-cutting initiative was successful. Hence, the market will price equity issues as coming from a company that had an unsuccessful cost-cutting initiative