Question: How is the above answer calculated? 12. CEM Corp. is currently financed 100% with equity and has a market value of $10 mln. However, management

How is the above answer calculated?

12. CEM Corp. is currently financed 100% with equity and has a market value of $10 mln. However, management is considering issuing $5 mln in debt and retiring half of the firm's outstanding equity. If the firm's cost of debt is 7% and its marginal tax rate is 35%, what would be the increase in firm value if we assume that there are no distress costs? a. $3.5 mln b. $1.75 mln c. $0.35 mln d. $0.12 mln

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