Hawar International is a shipping firm with a current share price of $$5\mathrm{.}23$ and $10\mathrm{.}6$ million shares outstanding. Suppose that Hawar

announces plans to lower its corporate taxes by borrowing $$20\mathrm{.}4$ million and repurchasing shares, that Hawar pays a corporate tax rate of

$30\%,$ and that shareholders expect the change in debt to be permanent.

a$.$ If the only imperfection is corporate taxes, what will be the share price after this announcement?

b$.$ Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $$5\mathrm{.}48$ after

this announcement, what is the $PV$ of financial distress costs Hawar will incur as the result of this new debt?