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(e) 11.37% 5. Two firms, Top-Dog and Under-Dog, generate $20000 in net operating income each year. Top-Dog has a capital structure consisting of 100% equity,
(e) 11.37% 5. Two firms, Top-Dog and Under-Dog, generate $20000 in net operating income each year. Top-Dog has a capital structure consisting of 100% equity, whereas Under-Dog uses 50% debt and 50% equity. Under-Dog must pay $10000 in interest on its debt each year. If the tax on corporate profits is 30%, what is the value of the tax shield for Under-Dog each period, employing the M&M "modified" model? (a) $9850 (b) $2300 (c) $3000 (d) $1700 (e) cannot be computed with the information provided
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