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Assume the marginal corporate tax rate is 21%. The firm has no debt in its capital...

Assume the marginal corporate tax rate is 21%. The firm has no debt in its capital structure. It is valued at $100 million what would be the value of the firm if it issued 40 million in perpetual debt and repurchased the same amount of equity?

A) 65 million

B) 110.5 million

C) 108.4 million

D) 100 million

E) 150 million

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Answer #1

Value of Unlevered firm = 40,000,000 * 0.21 = $8,400,000 or 8.4 million

Value of Levered Firm = $100 million + $8.4 million

Value of Levered Firm = $108.40 million

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