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That is to say a firm with a debt, supposedly perpetual, of 100 million euros. The interest on this debt is 6%. Your discount rate

That is to say a firm with a debt, supposedly perpetual, of 100 million euros. The interest on this debt is 6%. 


Your discount rate is 5%. The tax rate is 33.3% (one third). One million euros of additional debt would lead to an increase in bankruptcy costs of 200,000 euros. Should we take on more debt?

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