Mercer Corp. is a firm with 10 million shares outstanding and $84 million worth of debt outstanding. Its current share price is $73. Mercer's equity cost of capital is 8.5%. Mercer has just announced that it will issue $354 million worth of debt. It will use the proceeds from this debt to pay off its existing debt, and use the remaining $270 million to pay an immediate dividend. Assume perfect capital markets.
a. How come the share price doesn't drop when new debt is taken on?