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What will be the overall net benet of using debt [PV (ITS)PV (FDC)] after the acquisition? Tether has currently equity for $350M and debt for
What will be the overall net benet of using debt [PV (ITS)PV (FDC)] after the acquisition?
Tether has currently equity for $350M and debt for $210M, with a fixed amount debt policy. Tether is planning to buy a competitor's business for $90M and fund this acquisition with new debt. Assume that the net present value (NPVU) of this acquisition is O and that the riskiness of the firm's assets will not change with the acquisition. Tether will keep the new level of debt constant after the acquisition, which will increase the expected costs associated with financial distress PV(FDC) from $10M currently to $45M after the acquisition. Financial distress costs and taxes are the only relevant market imperfections. The corporate tax rate is 30%Step by Step Solution
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