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Consider the Modigliani and Miller world of corporate taxes. An unleveraged (all-equity) firm value is $80 million. By adding debt, the annual interest expense is
Consider the Modigliani and Miller world of corporate taxes. An unleveraged (all-equity) firm value is $80 million. By adding debt, the annual interest expense is $18 million, the corporate tax rate is 20%, and the discount rate on the tax shield is 8.0%. What is the value of the firm after adding debt?
A. $105M
B. $92M
C. $125M
D. $80M
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