Question 6 Company X has $10 of excess cash (i.e., cash that is not used in the company's operations) and operating assets that will generate risky (i.e., uncertain) future cash flows with a present value today of $25. It has no other assets. The company has risky zero-coupon bonds outstanding with a face value of $20 and no other debt. Who is likely to gain and who is likely to lose from the following maneuvers? Justify your answers. Note that you do not need to perform any calculations here. 6a) (10 points) Company X pays a cash dividend of $10 to its shareholders. 6b) (10 points) Company X halts operations and sells all of its operating assets for $15. It invests the proceeds from this sale along with its $10 of existing cash in Treasury Bills (i.e., risk-free bonds). Question 7 Ace Manufacturing is an all equity firm with a current market value of $500 million and 10 million shares outstanding. Ace plans to announce that it will issue $100 million of perpetual bonds and use these funds to repurchase equity. The bonds will have a 6-percent coupon rate. After the sale of the bonds and the share repurchase, Ace will maintain the new capital structure indefinitely. The corporate tax rate for Ace is 35%, and there are no personal taxes. 7a) (7 points) Immediately after Ace announces its plan to issue bonds and repurchase equity, but before the transactions take place, what will its stock price and total market capitalization be? Note that the market is forward looking, so any expected increase in future cash flow should be reflected in a higher valuation. 7b) (6 points) How many shares will Ace repurchase? 7c) (7 points) After the bond issue and share repurchase are completed, what will be the market value of Ace's equity?