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problem 5 ( 4 points ) ABC Corporation currently has a perpetual EBIT of $ 3 0 , 0 0 0 and is all -
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ABC Corporation currently has a perpetual EBIT of $ and is allequity financed. The tax rate is and the discount rate is
What is the value of the firm?
Now assume the firm issues $ of debt paying interest of per year, using the proceeds to retire equity. The debt is expected to be permanent. Assume also that the debt issue raises the probability of bankruptcy. If the company goes bankrupt, it will incur bankruptcy costs of $ after years. The discount rate is What is the value of the firm?
Should the firm issue debt under these conditions?
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