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You own all the equity of ABC Co. The company currently has no debt. The company's annual cash flow is $700,000 before interest and taxes.

You own all the equity of ABC Co. The company currently has no debt. The company's annual cash flow is $700,000 before interest and taxes. The corporate tax rate is 35%. You have the option to exchange 1/3 of your equity position for 4% coupon bonds with a face value of $1,500,000. Should you do this, and why? What would be the change in the market value of the firm after the exchange?

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