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Corwin International is a shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Corwin announces plans to increase its
- Corwin International is a shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Corwin announces plans to increase its leverage by borrowing $20 million and repurchasing shares.
- With perfect capital markets, what will the share price be after this announcement?
Suppose that Corwin pays a corporate tax rate of 30%, and that the shareholders expect the increase in debt to be permanent.
- If the only market imperfection is corporate taxes, what will the share price be after this announcement?
- Suppose the only market imperfections are corporate taxes and financial distress costs. If the share price rises to $5.75 after this announcement, what is the PV of financial distress costs Corwin will incur as the result of this new debt?
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