Cobalt Corp. has an unlevered value of $30 million and their…

Cobalt Corp. has an unlevered value of $30 million and their debt has a market value $25 million. Their tax rate is 25 percent. Ignoring agency costs, what is value of the firm’s bankruptcy costs at this level of debt if the actual market value of the company is $29 million? (Hint: start with the M&M Propositions)

Janice purchased 200 shares of a company whose capital struc…

Janice purchased 200 shares of a company whose capital structure is 40 percent debt. The company announced that it will sell new shares of stock to pay off all of its debt (that is, become unlevered). The value of the shares is $60 per share before and after the restructuring. How can Janice use homemade leverage to replicate the company’s old capital structure? Ignore taxes in your analysis.