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Feel Good Inc. is an unlevered shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Feel Good announces plans to implement a leverage recapitalization by borrowing $30 million debt at a risk-free rate of 3%. Suppose that Feel Good pays a corporate tax rate of 40%. a. If the only imperfection is corporate taxes, what will be the share price after this announcement if the debt has a maturity of 20 years (i.e., the principal will be reimbursed in period 20) (4 points)? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $5.80 after this announcement, what is the PV of financial distress costs Feel Good will incur as the result of this new debt (4 points)? C. Redo points a and b, if we assume that the debt is a fairly price permanent debt (8 points)? Feel Good Inc. is an unlevered shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Feel Good announces plans to implement a leverage recapitalization by borrowing $30 million debt at a risk-free rate of 3%. Suppose that Feel Good pays a corporate tax rate of 40%. a. If the only imperfection is corporate taxes, what will be the share price after this announcement if the debt has a maturity of 20 years (i.e., the principal will be reimbursed in period 20) (4 points)? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $5.80 after this announcement, what is the PV of financial distress costs Feel Good will incur as the result of this new debt (4 points)? C. Redo points a and b, if we assume that the debt is a fairly price permanent debt (8 points)

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