Executive Cheese has issued debt with a market value of $106.19 million and has outstanding 14.9 million shares with a market price of $10 a share. It now announces that it intends to issue a further $53.71 million of debt and to use the proceeds to buy back common stock. Debtholders, seeing the extra risk, mark the value of the existing debt down to $60 million.

a.	Calculate the market price of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price of the stock

$

b.	How many shares can the company buy back with the $53.71 million of new debt that it issues? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)

Number of shares

million

c.	What is the market value of the firm (equity plus debt) after the change in capital structure? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Market value

$ million

d.	What is the debt ratio after the change in structure? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Debt ratio

e.

Who (if anyone) gains or loses?

	The investors in the existing debt lose while the shareholders gain.
	The investors in the existing debt gain while the shareholders lose.