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Neo Inc. is 100% equity financed. The stock price is $100 per share. The firm plans to repurchase 20% of its stock and substitute an equal value of...
Neo Inc. is 100% equity financed. The stock price is $100 per share. The firm plans to repurchase 20% of its stock and substitute an equal value of debt yielding 5%. Suppose that before the repurchase, an investor owns 1,000 shares of the firm's common stock. What could the investor do to maintain his original unlevered equity investment in the firm? Ignore taxes and costs of financial distress.