Question: Tool Manufacturing has an expected EBIT of 73 000 in perpetuity
Tool Manufacturing has an expected EBIT of $73,000 in perpetuity and a tax rate of 35 percent. The firm has $145,000 in outstanding debt at an interest rate of 7.25 percent, and its unlevered cost of capital is 11 percent. What is the value of the firm according to M&M Proposition I with taxes? Should the company change its debt–equity ratio if the goal is to maximize the value of the firm? Explain.
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