Question: please explain and show how you got to youre answer SJU Inc. currently has no debt and it has a market value of $10 mil.

please explain and show how you got to youre answer SJU

please explain and show how you got to youre answer

SJU Inc. currently has no debt and it has a market value of $10 mil. It is considering a proposal to raise $4mil of debt to replace $4 mil of its equity. (A) In an MM world with no taxes, what would be the company's value after the recapitalization and why is this case? Explain. (B) In an MM world with taxes, how much is the company worth if its tax rate is 21% ? (C) Assume that you are told the probability of bankruptcy at $4mil of debt is 10% and the estimated bankruptcy costs is $1 mil, what would be the value of the company in an MM world with taxes and taking into account of bankruptcy costs? (D) In relation to your answer in (C), what are the major problems of trying to find the ideal level of debt

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