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A company is considering raising $100 million by issuing either debt or equity. If debt is issued, the effective marginal tax rate is expected to
A company is considering raising $100 million by issuing either debt or equity. If debt is issued, the effective marginal tax rate is expected to fall from 35% to 20%, and the yield of its debt is expected to rise from the current level of 10.5% to 13%. The tax benefit associated with the new debt issue is worth approximately _______, and the corresponding financial distress costs equal approximately __________.
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