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A . An all - equity firm that pays a 2 4 % corporate income tax has 3 5 0 , 0 0 0 shares

A. An all-equity firm that pays a 24% corporate income tax has 350,000 shares outstanding, a cost of capital of 13% and generates perpetual annual EBIT of $2.50 Million. According to the M&M theories of capital structure, what is the unlevered firms stock price per share? (Note that you may ignore any impact of personal taxes.)B. The firm in problem A plans to borrow $10 Million at 6% annual interest to retire some equity. According to the M&M theories, after the recapitalization, what would be the levered firms stock price per share?

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