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In a fictious marketing setting, there is no tax, and when borrowing, investors and corporations face the same interest rate at 10% for lending and

In a fictious marketing setting, there is no tax, and when borrowing, investors and corporations face the same interest rate at 10% for lending and borrowing. Company X has a total asset of $40,000 and its stock is priced $50 per share. There are two possible economic outcomes for Company X: under the good economy, the firm makes $8,000 operating income; under the bad economy, $2,000 operating income.

You are an investor with $500 to buy Company Xs shares.

If Company X is fully equity financed, but you are an investor who prefers the company to generate ROEs and EPSs as if it has 50% debt ratio. What would you do to get what you prefer?

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