Costs of financial Distress. Let"s go back to the Double-R Nutting Company. Suppose that Double-R"s bonds have a face value of $50. Its current market-value balance sheet is Assets Liabilities and Equity Net working capital $20 Bonds outstanding $25 Fixed assets 10 Common stock 5 Total assets $30 Total liabilities and shareholders' equity $30 Who would gain or lose from the following manoeuvres?

a. Double-R pays a $ 10 cash dividend.

b. Double-R halts operations, sells its fixed assets for $6, and converts net working-capital into $20 cash. It invests its $26 in Treasury bills.

c. Double-R encounters an investment opportunity requiring a $10 initial investment with NPV = SO, it borrows $10 to finance the project by issuing more bonds with the same security, seniority, and so on, as the existing bonds.