Assume the tax rate is 30%

Question:

A Unlevered firm intends to sell bonds to add financial leverage to its capital structure. In the restructuring, the entire proceeds (D = $8,800) of the debt issue will be used to repurchase equity. The tax rate is 30%, and you may assume that this debt will be permanent. What will be the impact on the firm value of the public announcement of the capital restructuring? (Assuming semi-strong efficient financial markets.)

A. The firm value will decrease by $2,640

B. The firm value will decrease by $6,160

C. The firm value will increase by $6,160

D. The firm value will increase by $2,640