Question
An all-equity firm currently has 1,000,000 shares outstanding with a market price of $10. The firm is considering issuing $5,715,705 in debt into perpetuity. The
An all-equity firm currently has 1,000,000 shares outstanding with a market price of $10. The firm is considering issuing $5,715,705 in debt into perpetuity. The firm has estimated the total cost of debt (including bankruptcy and agency costs) is equal to $863,045. The current corporate tax rate TC = 30%.
What is the value of the firm if they issue the debt assuming the trade-off theory holds?
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Venture capital and the finance of innovation
Authors: Andrew Metrick
2nd Edition
9781118137888, 470454709, 1118137884, 978-0470454701
