Question: Please give an explaination/show work. Thanks! TRU's management is worried about the high current level of debt in their capital structure. They want to replace

Please give an explaination/show work. Thanks! TRU's management is worried about

Please give an explaination/show work. Thanks!

TRU's management is worried about the high current level of debt in their capital structure. They want to replace $100 million of equity with $100 million of new debt. The firm's current market value of equity is $1000 million. The firm currently has $500 million of debt. The debt which they are replacing was prevlously considered to be perpetual (i.e., no-one expected the debt levels to decrease before). Assume no changes to stock price and equity risk after thils. The tax rate is 20%. How much will the firm be worth after the change in capital structure

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