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Currently, Dividend Airlines is an unlevered firm and expects to generate $195 free cash flow each year in perpetuity. Its corporate tax rate is 31%.
Currently, Dividend Airlines is an unlevered firm and expects to generate $195 free cash flow each year in perpetuity. Its corporate tax rate is 31%. The firm is considering a capital structure to allow $387 of debt. The debt is assumed to be rolled over when it matures with the same amount of principal. Its cost of debt capital is 15%. Similar unlevered firms in the same industry have a cost of equity capital of 21%. Assume no agency costs nor default risk. What will the value of Dividend Airlines be after the change of capital structure?
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