Question
Tool Manufacturing has an expected EBIT of $67,000 in perpetuity and a tax rate of 35 percent. The firm has $139,000 in outstanding debt at
Tool Manufacturing has an expected EBIT of $67,000 in perpetuity
and a tax rate of 35 percent. The firm has $139,000 in outstanding debt at an interest
rate of 6.85 percent, and its unlevered cost of capital is 10.25 percent. What is the
value of the firm according to M&M Proposition I with taxes? Should the company
change its debt-equity ratio if the goal is to maximize the value of the firm? Explain
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Personal Finance
Authors: Jeff Madura, Hardeep Singh Gill
3rd Canadian Edition
978-0133035575, 133035573, 978-0133970524, 133970523, 978-0134040042
