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Hawar International is a shipping firm with a current share price of $4.50 and 15 million...

Hawar International is a shipping firm with a current share price of $4.50 and 15 million shares outstanding. Suppose Hawar announces plans to lower its corporate taxes by borrowing $20 million and repurchasing shares.
a. With perfect capital​ markets, what will the share price be after this​ announcement?
b. Suppose that Hawar pays a corporate tax rate of 30%​, and that shareholders expect the change in debt to be permanent. If the only imperfection is corporate​ taxes, what will the share price be after this​ announcement?
c. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.55 after this​ announcement, what is the PV of financial distress costs Hawar will incur as the result of this new​ debt?

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jeff jeffy answered 1 year ago
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