Consider the example of the Myers/Majulf problem. We found one equilibrium. Suppose that, in this example the firm has o = 5 shares outstand- ing, (before it issues any new equity).

a. How many new shares, n, will the firm issue when the manager knows the state j = B?

b. What will the price of the shares equal after the manager announces that the firm is going to undertake the project and issue equity?

c. What will the price of the shares equal if the manager announces that the firm will not issue equity and therefore reject the project?