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The market value of a firm with $ 1 million of debt is $ 3 . 4 million. The firm's earnings before interest and tax

The market value of a firm with $

1

million of debt is $

3.4

million. The firm's earnings

before interest and tax

(

EBIT

)

are expected to be a perpetuity. The interest rate on debt

10 % .

The company's tax rate is

40 % .

What would be the value of the firm if it was

financed entirely with equity

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