Assume an M&M world with corporate income taxed at a rate TC = 40%. An all-equity firm has the cost of capital of 10% and the value of $100 mil. The firm issues debt and uses the entire proceeds from this sale to repurchase some of its equity. As a result, the firm’s WACC drops to 8%. What is the $ value of the firm’s equity after the repurchase?

Answer rating: 100% (QA)

Value of unlevered firm 100 million Cost of capital 10 value ... View the full answer