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Question 3 (total of 14 marks): For each of the following events, state the effect on the firm's market value of levered equity (E), market value of fixed-coupon debt (D), market value of the firm's levered assets (V), systematic risk of the firm's levered assets measured using beta (BV) and existing shareholder wealth. Important assumptions: The risky firm's levered assets currently have the same systematic risk as the market portfolio, all events happen in isolation and are a surprise, all transactions are done at a fair price, that there are no transaction costs, no asymmetric information (so ignore signalling effects), no change in the credit risk of the firm's debt and no interest tax shields or depreciation tax shields due to the absence of corporate and personal taxes. Market Value of Market Value of Share price Number of Market Value of Systematic risk Existing Firm's Debt Firm's Equity shares the Firm's of the firm's Shareholder Assets assets wealth (D) IE) (P) in] (V) (BV) "" ssue $1m of bonds and use the funds to pay a $1m higher CEO bonus this year, which the market elieve is a total waste. Buys a patent (intangible Asset) with a beta of 2 Funded half with loans and half via a rights issue. ** "" 4 Conducts a 100% stock dividend (or 1-for-1 bonus ssue). : Undertakes a private placement at a 40% discount to the pre- " " " Announcement market price. . " Cuts in high-risk R&D which leads to higher profits in the short term ut the market believe are pverall a negative NPV decision . 4 Short squeeze enacted by amateur traders coordinating on the Internet forum Reddit. : 4 Up or nothing . The pandemic ending anything earlier than expected due to successful vaccines. Question 3 (total of 14 marks): For each of the following events, state the effect on the firm's market value of levered equity (E), market value of fixed-coupon debt (D), market value of the firm's levered assets (V), systematic risk of the firm's levered assets measured using beta (BV) and existing shareholder wealth. Important assumptions: The risky firm's levered assets currently have the same systematic risk as the market portfolio, all events happen in isolation and are a surprise, all transactions are done at a fair price, that there are no transaction costs, no asymmetric information (so ignore signalling effects), no change in the credit risk of the firm's debt and no interest tax shields or depreciation tax shields due to the absence of corporate and personal taxes. Market Value of Market Value of Share price Number of Market Value of Systematic risk Existing Firm's Debt Firm's Equity shares the Firm's of the firm's Shareholder Assets assets wealth (D) IE) (P) in] (V) (BV) "" ssue $1m of bonds and use the funds to pay a $1m higher CEO bonus this year, which the market elieve is a total waste. Buys a patent (intangible Asset) with a beta of 2 Funded half with loans and half via a rights issue. ** "" 4 Conducts a 100% stock dividend (or 1-for-1 bonus ssue). : Undertakes a private placement at a 40% discount to the pre- " " " Announcement market price. . " Cuts in high-risk R&D which leads to higher profits in the short term ut the market believe are pverall a negative NPV decision . 4 Short squeeze enacted by amateur traders coordinating on the Internet forum Reddit. : 4 Up or nothing . The pandemic ending anything earlier than expected due to successful vaccines

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