A company has the following cash flows during recessions and booms. The company has chosen a...

 

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A company has the following cash flows during recessions and booms. The company has chosen a low-debt capital structure, but you as an investor would prefer a high-debt capital structure. Cash flows to Firm Low-debt capital structure Debt Equity High-debt capital structure Debt Equity Recession 100 Boom 170 Face value of bond: 80 80 80 20 20 90 Face value of bond: 130 100 130 0 40 For simplicity, assume perfect capital markets and that the company has one bond and one share outstanding. Part 1 Attempt 1/3 for 10 pts. If you want to own 9% of the high-debt firm's debt in terms of cash flows, how many of the low-debt firm's shares should you buy? Fractional values are acceptable. 4+ decimals A company has the following cash flows during recessions and booms. The company has chosen a low-debt capital structure, but you as an investor would prefer a high-debt capital structure. Cash flows to Firm Low-debt capital structure Debt Equity High-debt capital structure Debt Equity Recession 100 Boom 170 Face value of bond: 80 80 80 20 20 90 Face value of bond: 130 100 130 0 40 For simplicity, assume perfect capital markets and that the company has one bond and one share outstanding. Part 1 Attempt 1/3 for 10 pts. If you want to own 9% of the high-debt firm's debt in terms of cash flows, how many of the low-debt firm's shares should you buy? Fractional values are acceptable. 4+ decimals

Answer rating: 100% (QA)

To determine the number of shares you should buy in the lowdebt firm in order to own 9 of the highd... View the full answer