Executive Chalk is financed solely by common stock and has outstanding 25m shares with a market price of $10 per share. It now announces that it intends to issue $160m old debt and to use the proceeds to buy back common stock.

a. What is the price of stock after the announcement? (not the change of price nor market value of equity)

b. How many shares (in millions) can the company buy back with the $160m of new debt that it issues?

c. What is the market value of the firm (in millions) after the change in capital structure?

d. What is the debt-to-equity ratio after the change in structure? (after the recapitalization)

e. Nobody gains or loses from the recapitalization. (T/F)