Tax-Bankruptcy Tradeoff for AVX Corporation AVX Corp. (NYSE: AVX), a leading manufacturer and supplier of electronic components, currently has no debt outstanding and a market value of $2.27 billion. They are considering changing their capital structure to take advantage of the interest tax shield. However, the management is concerned about financial distress costs, so they want to evaluate the tax- bankruptcy tradeoff. AVX's EBITDA over the last 12 months is $200 million. You also have the following information on average default rates, average financial ratios, and interest rates by credit rating. Assume a risk-free rate of 2%. AAA | BB 0.05% 0.09% 0.23% 0.47% 2.13% 5.38% Annualized default rate EBITDA interest coverage ratio Interest rate 18.7 14 10 6.3 3.9 2.3 2.25% 2.75% 3.50% 4.50% 6.00% 8.25% 1) Use the information above to determine how much debt AVX should issue if they want to achieve a credit rating of A. Assume any cash raised by issuing debt will be paid out to equity holders, so that the debt issuance does not affect operating cash flows. Tax-Bankruptcy Tradeoff for AVX Corporation AVX Corp. (NYSE: AVX), a leading manufacturer and supplier of electronic components, currently has no debt outstanding and a market value of $2.27 billion. They are considering changing their capital structure to take advantage of the interest tax shield. However, the management is concerned about financial distress costs, so they want to evaluate the tax- bankruptcy tradeoff. AVX's EBITDA over the last 12 months is $200 million. You also have the following information on average default rates, average financial ratios, and interest rates by credit rating. Assume a risk-free rate of 2%. AAA | BB 0.05% 0.09% 0.23% 0.47% 2.13% 5.38% Annualized default rate EBITDA interest coverage ratio Interest rate 18.7 14 10 6.3 3.9 2.3 2.25% 2.75% 3.50% 4.50% 6.00% 8.25% 1) Use the information above to determine how much debt AVX should issue if they want to achieve a credit rating of A. Assume any cash raised by issuing debt will be paid out to equity holders, so that the debt issuance does not affect operating cash flows