Wrigley Inc. had $1 billion in EBITDA in 2006. The firm is unlevered and has a market value of equity of $12 billion and a tax rate of 40%. Consider the effect on the value of the firm of the following debt issuances. Assume that all proceeds will be used to buy back stock. 

a) Issuing $6 billion of 8% coupon rate 5-year bonds which repay the principal in 5 years.

b) Issuing $6 billion of 8% coupon rate permanent bonds.

Answer rating: 100% (QA)

a Since annual interest is 0086 billion 480 million the annual tax shield ... View the full answer