Firm B has an expected EBIT of 40,000 in perpetuity and a tax rate of 28 per
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Question:
Firm B has an expected EBIT of £40,000 in perpetuity and a tax rate of 28 per cent. The firm has £50,000 in outstanding debt at an interest rate of 6 per cent, and its unlevered cost of capital is 12 per cent.
Required:
(i) What is the value of the firm according to Modigliani and Miller (M&M) Proposition I with taxes?
(ii) Should firm B change its debt–equity ratio if the goal is to maximize the value of the firm? Explain.
Related Book For
Fundamentals Of Thermodynamics
ISBN: 9781118131992
8th Edition
Authors: Claus Borgnakke, Richard E. Sonntag
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