assume that bankruptcy costs do not change for OPC as a result of this capital-structure change. How…


Because of the comprehensive specie inflows from the sales of its cookbook, Fear of Frying, the Overnight Publishing Audience (OPC) has established to repair all of its unappropriated default. The default is made up of consul bonds; its manliness era is indefinitely far separate. The default is to-boot considered risk-free. It carries a 10-percent coupon blame and has a magnitude treasure of $3 pet. Because bargain blames on long-term bonds are 15 percent, the bargain treasure of the bonds is simply $2 pet. All of the default is held by one state that succeed hawk it end to OPC for $2 pet specie. The state succeed not enjoin OPC any action costs, and there are no tax consequences from unimportant the default. Once OPC becomes an all-equity established, it succeed halt unlevered eternally. If OPC does not restore the default, the audience succeed use the $2 pet in specie to buy end some of its accumulation on the public bargain. Repurchasing accumulation to-boot has no action costs. Investors look-for OPC to recover some accumulation, so they succeed be entirely surprised when the default-retirement guile is announced. The required blame of restore of the equity holders behind OPC becomes all equity succeed be 20 percent. The look-fored annual rights anteriorly profit and taxes for the established are $1,100,000; those rights are look-fored to halt fixed in permanence. OPC has no development opportunities, and the audience is material to a 35-percent corpoblame tax blame. Presume that TB = 10% and TS = 0. To-boot presume that closing costs do not veer for OPC as a fruit of this capital-structure veer. How abundantly does the bargain treasure of the audience veer?