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Tool Mfg. has an expected EBIT = $67,000 in perpetuity and a tax rate = 35%. The firm has $139,000 in outstanding debt at an

Tool Mfg. has an expected EBIT = $67,000 in perpetuity and a tax rate = 35%. The firm has $139,000 in outstanding debt at an interest rate = 6.85%. Its unlevered cost of capital is 10.25%. What is the value of the firm according to M&M Proposition 1 with taxes? Should the company change its D/E ratio if the goal is to maximize the value of the firm?

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