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Your travels take you to a distant land with only one imperfection. Corporations must pay taxes, but the interest on debt is tax deductible. An
Your travels take you to a distant land with only one imperfection. Corporations must pay taxes, but the interest on debt is tax deductible. An unlevered firm has a value of $700,000. A similar firm is levered with $100,000 in debt. The return on debt is 6% and the debt is perpetual. Both are in a 30% tax bracket. What is the value of the levered firm
A. 730,000
B. 700,000
C. 800,000
D. 706,000
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