Compton Corporation currently has no debt in its capital structure. As an unlevered firm, its cost of equity is 10 percent. It is considering substituting
Compton Corporation currently has no debt in its capital structure. As an unlevered firm, its cost of equity is 10 percent. It is considering substituting $40,000 in debt at 4 percent interest. The EBIT for the firm is $15,000 under either scenario, and the tax rate is 35 percent. According to M&M with taxes, what is the debt/equity ratio for the levered firm?
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Authors: Jonathan Berk and Peter DeMarzo
3rd edition
978-0132992473, 132992477, 978-0133097894
