Intro A company has the following cash flows during recessions and booms. The company has chosen a low-debt capital structure, but you as an investor would prefer a high-debt capital structure. Boom Cash flows to Firm Recession 70 190 Low-debt capital structure Debt Equity 50 20 Face value of bond: 50 50 140 High-debt capital structure Debt Equity Face value of bond: 100 100 70 0 90 For simplicity, assume perfect capital markets and that the company has one bond and one share outstanding. Part 1 Attempt 1/10 for 10 pts. If you want to own 9% of the high-debt firm's debt in terms of cash flows, how many of the low-debt firm's shares should you buy? Fractional values are acceptable. 4+ decimals Submit Intro A company has the following cash flows during recessions and booms. The company has chosen a low-debt capital structure, but you as an investor would prefer a high-debt capital structure. Boom Cash flows to Firm Recession 70 190 Low-debt capital structure Debt Equity 50 20 Face value of bond: 50 50 140 High-debt capital structure Debt Equity Face value of bond: 100 100 70 0 90 For simplicity, assume perfect capital markets and that the company has one bond and one share outstanding. Part 1 Attempt 1/10 for 10 pts. If you want to own 9% of the high-debt firm's debt in terms of cash flows, how many of the low-debt firm's shares should you buy? Fractional values are acceptable. 4+ decimals Submit