The balance sheet of the Universal Sour Candy Company is given in Table Q16.9. Assume that all

Question:

The of the Universal Sour Candy Company is given in Table Q16.9. Assume that all items are expressed in terms of market values. The company has decided to pay a $2,000 to shareholders. There are four ways to do it:
1. Pay a cash Issue $2,000 of new debt and equity in equal proportions ($1,000 each) and use the proceeds to pay the Issue $2,000 of new equity and use the proceeds to pay the Use the $2,000 of cash to repurchase equity.
What impact will each of the four policies above have on the following?
(a) The systematic risk of the of assets held by the firm
(b) The market value of original bondholders' wealth
(c) The market value ratio of debt to equity
(d) The market value of the firm in a world without taxes
Table Q16.9 as of December 31, 2003

The balance sheet of the Universal Sour Candy Company is

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