Question
Please show work and NO EXCEL sheets 7. Massey-Moss Corporation has a perpetual EBIT of $3 million and a 40% tax rate. Lets assume that
Please show work and NO EXCEL sheets
7. Massey-Moss Corporation has a perpetual EBIT of $3 million and a 40% tax rate. Lets assume that depreciation expense is zero. It is able to borrow at an interest rate of 14%, whereas its required rate of return on equity in the absence of borrowing is 18%.
a. In the absence of personal taxes, what is the value of the firm when it has no debt? When it has $4 million in debt?
b. If the marginal personal tax rates on stock and bond income are 25% and 30%, respectively, determine the value of the firm when it has no debt and when it has $4 million in debt.
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