You are the manager of an unlevered firm whose market value is $3,700,000. You are considering issuing $850,000 in debt and using these funds to purchase an equal amount of equity. The corporate tax rate is 28%, and the stock holders and bond holders face personal tax rates of 5% and 35% respectively. Use the Miller (1977) Model to estimate the value of the equity of the relevered firm.

Multiple Choice

• $3,655,538

• $2,805,538

• $3,700,000

• $2,850,000

• $3,497,857