Lulu is an apparel manufacturer with no debt outstanding and a market value of $1,000 million. Lulu is considering borrowing $400 million and buying back its stock. The interest rate on debt is 9% and the firm faces a tax rate of 32%. Estimate the present value of interest savings assuming that the current yield to maturity of debt is 8%. Question 26 options:

$175 million

$125 million

$144 million

$128 million