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Hamster Inc. announces that it will issue 0.25m Serial B bond with $1,000 face value, 6% annual coupon and 6% yield to maturity. The firm
Hamster Inc. announces that it will issue 0.25m Serial B bond with $1,000 face value, 6% annual coupon and 6% yield to maturity. The firm will use the funds to retire existing equity. Therefore, this is a debt-equity transaction that increases the firm's leverage.
3) Determine how this leverage-increasing transaction will affect shareholder value. Calculate and show the change in value at the individual shareholder level. {Hint: Use MM theory.}
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