Travel Inc has 25 million shares outstanding trading at $15 per share. The company also has $175 million (market value) debt outstanding. With interest rates at all time low. Trave;'s executives decide to issue additional $40 million worth of debt and use the proceeds to buy back common stock. Debtholders are unhappy with the increase in risk and mark down the value of existing debt to $125 million.

(a) Compute the new market price of Travel Inc's stock incorporating the effect of this announcement.

(b) What will be the market value of the firm after the recapitlization?

(c) Compute the debt ratio