Your firm has a before-tax return of $2600 on an investment of $1980 and a marginal tax rate of 35%.The overall cost of capital is 9%.The firm currently uses 40% debt financing with an expected return of 6%. If it increases its use of debt to 50%, the expected return on the debt will be 6.5%. By how much will the present value of the tax subsidy increase (decrease) if the firm adopts the new capital structure?

13.25

18.51

6.62

25.13