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A levered firm has tax rate 30%. Its issues debt and does a share repurchase increasing it debt/total asset ratio from 25% to 50%. As
A levered firm has tax rate 30%. Its issues debt and does a share repurchase increasing it debt/total asset ratio from 25% to 50%. As a result, its tax shield rose from $75 million to $150 million. Its share price rose from $11.00 to $12.43. Shortly after the increase of debt to 50%, the company's tax rate fell from 30% to 15%. Which statement is true? The firms total tax shield fell back to $75 and share price fell below $11. O The firms total tax shield fell back to $75 and share price fell back to $11. The firms total tax shield fell back to $75 and share price fell but is higher than $11
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