You are the CEO of a firm that has no debt - all capital comes from...

 

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You are the CEO of a firm that has no debt - all capital comes from common equity. Currently, the market value of your firm (its market capitalization) is $196 million. Assume that the corporate tax rate is 21%. If you were to issue $33 million of debt and buy back shares, what is your estimate of how much firm value will change. Assume that corporate tax rates are the only market imperfection and that your firm will consistently have the profitability to pay interest on the debt. Report your answer in millions rounded to the nearest hundredth (i.e. $11,500,000 would be 11.5). You are the CEO of a firm that has no debt - all capital comes from common equity. Currently, the market value of your firm (its market capitalization) is $196 million. Assume that the corporate tax rate is 21%. If you were to issue $33 million of debt and buy back shares, what is your estimate of how much firm value will change. Assume that corporate tax rates are the only market imperfection and that your firm will consistently have the profitability to pay interest on the debt. Report your answer in millions rounded to the nearest hundredth (i.e. $11,500,000 would be 11.5).

Answer rating: 100% (QA)

Given Market capitalization value of the unleveraged firm Vu 196 million Amount of debt issued D ... View the full answer