Question: (3) Value with $7 million in debt: Value = $10,000 + .40($7,000) = $12,800 Due to the tax subsidy, the firm is able to increase

(3) Value with $7 million in debt:

Value = $10,000 + .40($7,000) = $12,800 Due to the tax subsidy, the firm is able to increase its value in a linear manner with more debt.

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