Using the modiglianimiller propositions with taxes, Ask an Expert

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Using the Modigliani/Miller propositions with taxes, calculate the change in the value of the firm and the change in the required return on equity if it borrows and $2,000,000 and uses the funds to retire $2,000,000 of its equity.

The cost of the debt will be 8% and the current required return on equity is 14%.

Currently, the firm has 3,000,000 shares outstanding and they are selling for $4.00 each and no debt. The corporate tax rate is 40%.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92879817

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