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An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $80 million in debt at a 4% interest rate.
An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $80 million in debt at a 4% interest rate. Its pre-tax cost of debt is 4% and its unlevered cost of equity is 10%. No growth is expected. Assuming the corporate tax rate is 40%, use the MM model with corporate taxes to determine the value of the levered firm. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number.
$ million
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