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Assume that in the event of default, 20% of the value of MI's assets will be lost in bankruptcy ...

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Assume that in the event of default, 20% of the value of MI's assets will be lost in bankruptcy ...

Assume that in the event of default, 20% of the value of MI's assets will be lost in bankruptcy costs. Suppose that at the start of the year, MI has no debt outstanding, but has 5.6 million shares of stock outstanding. If MI issues debt of $125 million due next year and uses the proceeds to repurchase shares, the share price following the announcement of the repurchase will be closest to:
A) $23.90
B) $23.75
C) $25.00
D) $5.15

Textbook

Corporate Finance: The Core

Edition: 4^th

Authors: Berk, DeMarzo

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