Info Systems Technology (IST) manufactures microprocessor chips for use in appliances and other applications IST has no debt and 200 million shares outstanding The correct price for these shares is either $9 25 or $8.25 per share Investors view both possibilities as equally likely, so the shares currently trade for 58 75 IST must raise $350 million to build a new production facility Because the firm would suffer a large loss of both customers and engineering talent in the event of financial distress, managers believe that it is borrows the $350 million, the present value of financial distress costs will exceed any tax benefits by $15 million At the same time, because investors believe that managers know the correct share price, IST faces a lemons problem if it attempts to raise the $350 million by issuing equity a. Suppose that if IST Issos equity, the share price will remain at $875 To maximize the long-term share price of the firm once its true value is known would managers choose to issue equity or borrow the 5350 million if They know the correct value of the shares is $8.25 it. They know the correct value of the shares is $9.25? b. Given your answer to part (a) what should investors conclude i IST issues equity? What will happen to the share price? c. Given your answer to purt (a). what should investors conchide if IST issues debt? What will happen to the share price in that case? d. How would your answers change if there were no distress costs but only tax benefits of loverage? a. Suppose that if IST issues equity, the share price will remain at 58 75. To maximize the long-term share price of the firm once its true value is known, would managers choose to issue equity or borrow the $350 million if They know the correct value of the shares is $8257 (Select the best choice below) O Managers should issue equity for $350 milion Managers should borrow the $350 milion Click to select your answer a. Suppose that if IST issues equity, the share price will remain at $8.75. To maximize the long-term share price of the firm once its true value is known, would managers choose to issue equity or borrow the 5350 million if 1. They know the correct value of the shares is $8.25? (Select the best choice below) Managers should issue equity for 5350 million Managers should borrow the $350 million Suppose that if IST issues equity, the share price will remain $8.75 To maximize the long-term share price of the firm once its true value is known, would managers choose to issue equity or borrow the $350 million if They know the correct value of the shares is $9.25? (Select the best choice below) Managers should issue equity for $350 million Managers should borrow the $350 million b. Given your answer to part (a). what should investors conclude if IST issues equity? What will happen to the share price? (Select the best choice below) O A. IF IST issues equity investors would conclude IST is underpriced and the share price would rise to $9.25. B. IFIST Issues equity Investors would conclude IST is overpriced and the share price would decline to 58 25 C. IF IST issues equity, investors would conclude IST is overpriced and the share price would decline to $8.75. OD. IF IST issues equity, investors would conclude IST is underpriced and the share price would rise to $8.75 c. Given your answer to part (a) what should investors conclude if IST issues debt? What will happen to the share price in that case? (Select the best choice below) A. MIST issues debt, Investors would conclude IST is undervalued and the share price would rise to 58.75 OB. I 1ST issues debt investors would conclude IST is undervalued and the share price would rise to 59 18 OC. If IST issues debt, investors would conclude IST is overvalued and the share price would decline to $8.75 OD. HIST issues debt, investors would conclude IST is overvalued and the share price would decline to $9.18 d. How would your answers change if there were no distress costs, but only tax benefits of leverage? (Select the best choice below) O A. Al firms would issue debt and the share price would rise above 58.75 on the announcement OB. Al firm would issue debt and the share price would fall below $8.75 on the announcement OC. All firms would issue oquity at a share price of 58 25 OD. There would be no change from the answers above Cock to select your