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M&M Proposition 1 (With Taxes) Alpha Tech's CFO is comparing his company against Beta Corp. He's curious as to why Beta decided to have debt

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M&M Proposition 1 (With Taxes) Alpha Tech's CFO is comparing his company against Beta Corp. He's curious as to why Beta decided to have debt in its capital structure and is wondering if Alpha should do the same. Assume that now the government is imposing a 20% corporate tax rate. Beta has perpetual debt. Use facts from the previous problems when needed, but do not forget that now we're dealing with taxes, whereas in previous calculations we were in a world of no taxes (this will change your previous answers). 9) Calculate the value of Alpha Tech (i.e. calculate the value of the unlevered firm) (2 pts) 10) Calculate the value of Beta Corp (i.e. calculate the value of the levered firm)(perpetual debt) (2 pts) 11) If Alpha were to mimic Beta's capital structure and borrow the same amount of money, what would be the increase in value of Alpha after taking out the loan? (hint: look at the results from the previous questions) (2 pts) M&M Proposition 1 (With Taxes) Alpha Tech's CFO is comparing his company against Beta Corp. He's curious as to why Beta decided to have debt in its capital structure and is wondering if Alpha should do the same. Assume that now the government is imposing a 20% corporate tax rate. Beta has perpetual debt. Use facts from the previous problems when needed, but do not forget that now we're dealing with taxes, whereas in previous calculations we were in a world of no taxes (this will change your previous answers). 9) Calculate the value of Alpha Tech (i.e. calculate the value of the unlevered firm) (2 pts) 10) Calculate the value of Beta Corp (i.e. calculate the value of the levered firm)(perpetual debt) (2 pts) 11) If Alpha were to mimic Beta's capital structure and borrow the same amount of money, what would be the increase in value of Alpha after taking out the loan? (hint: look at the results from the previous questions) (2 pts)

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