Question: Tool Manufacturing has an expected EBIT of 57 000 in perpetuity

Tool Manufacturing has an expected EBIT of $57,000 in perpetuity and a tax rate of 35 percent. The firm has $90,000 in outstanding debt at an interest rate of 8 percent, and its unlevered cost of capital is 15 percent. What is the value of the firm according to MM Proposition I with taxes? Should Tool change its debt–equity ratio if the goal is to maximize the value of the firm? Explain.


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  • CreatedAugust 28, 2014
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