Investment Theory:

Assume corporate taxes as detailed in the following question:

6. An all-equity firm has 155,000 shares of common stock outstanding, currently worth $20 per share. Its equity holders require a 20% return. The firm decides to issue $1 million of 10% debt and use the proceeds to repurchase common stock. The corporate tax rate is 30%.

a. What is the market value of the firm before the repurchase?

b. According to Modigliani-Miller, what is the market value of the firm after the repurchase?

c. What is the market value of the firms equity after the repurchase?