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Your firm has a before-tax return of $2000 on an investment of $1100 and a marginal tax rate of 35%. The overall cost of capital
Your firm has a before-tax return of $2000 on an investment of $1100 and a marginal tax rate of 35%. The overall cost of capital is 9%. The firm currently uses 45% debt financing with an expected return of 6%. If it increases its use of debt to 55%, the expected return on the debt will be 7%. By how much will the present value of the tax subsidy increase (decrease) if the firm adopts the new capital structure? Group of answer choices a14.74 b11.66 c21.09 d 5.83
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