Wartsila BV is levered. It has a perpetual outstanding debt, with a yearly interest payment of $30000. The cost of debt is the risk-free rate of 5%. The EBIT of the corporation is
$60000 and expected to be constant forever. The corporate tax rate is 35%. Interest payments are tax-deductible, but only up to 30% of the EBIT. This morning, unexpectedly,
the government has changed the tax regime. Now, interest payments are tax-deductible up to 55% of the EBIT, while the marginal corporate tax rate stays the same. Based on this change in the tax-regime, what is the total increase in the value of equity in the firm upon the announcement of the change in the tax regime?

Answer rating: 100% (QA)

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