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A firm is currently an all equity firm. It is planning on borrowing $10,000 at an interest rate of 20% and using the proceeds to

A firm is currently an all equity firm. It is planning on borrowing $10,000 at an interest rate of 20% and using

the proceeds to repurchase shares. The corporate tax rate is 35%. If the firm goes ahead with its plans, by how

much will its income tax bill in the following year change? (The answer is increase by 700, just not sure how!)

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