Question 1

Which of the following best describes how to calculate the price change that comes from issuing new debt and using the proceeds for a share repurchase? Assume no signaling effect and no financial distress costs.

Question 1 options:

	A. The price will go up by the present value of all future tax savings to the firm, spread out over all outstanding shares that exist at the time before the firm announces the recapitalization.
	B. The price will go down by the present value of all future tax savings to the firm, spread out over all outstanding shares that exist at the time before the firm announces the recapitalization.
	C. The price will go up by the present value of all future tax savings to the firm, spread out over all outstanding shares that exist at the time after the firm executes the recapitalization.
	D. The price will go down by the present value of all future tax savings to the firm, spread out over all outstanding shares that exist at the time after the firm executes the recapitalization.
	E. None of the above are correct.