Question 4 A company has zerocoupon bonds outstanding that mature one year from today and have a face value of $500. The bonds do not include any covenants that restrict the company from issuing additional debt, even if this additional debt is of higher seniority than the existing bonds. The company will realize all of its cash flow next year. This cash ow will be $200 with probability 18, $600 with probability 113, and $1,000 with probability 113. The company is planning to issue new bonds with a face value of $200 that will be senior to the old debt and that will also be due in one year. Assume for simplicity that the riskfree rate and market risk premium are zero (so there is no discounting, and thus the value of a claim today is equal to the expected payoff to the claimholder one year from today) and that there are no taxes. 4a) (10 points) How much money will the company receive from selling its new bonds? 4b) (10 points) Suppose that the proceeds from the new bonds are used to pay a onetime dividend to shareholders. After The company issues the new bonds, what will the market value of (i) the old debt, (ii) the new debt, and (iii) the company's equity be? Has total firm value changed? Who is made better off or worse off from the transaction? Question 5 A company consists of a machine that will produce cash flows of $450 one year from today if the economy is good and $150 if the economy is bad. The economy is good or bad each with 50% probability. Assume for simplicity that the riskfree rate and market risk premium are zero {so that there is no discounting, and thus the value of a claim today is equal to the expected payoff to the claimholder one year from today} and that there are no taxes. The company has 100 shares outstanding and debt with a face value of $200 due at the end of the year. 5a) (6 points} What is the company's share price [i.e., the market value of one of its shares] ? 5b) (7 points) Suppose that the company unexpectedly announces that it will issue additional debt with the same seniority as existing debt (i.e., pari passu) and a face value of $100. The company will use the entire proceeds to repurchase some of its outstanding shares. What is the market price of the new debt? 5c} (7' points) Just after the announcement described in part b, what will the price of a share of the company's stock be