TechnoWorks has an expected EBIT of $50,000 in perpetuity and a tax rate of 30 percent. The firm has $100,000 in outstanding debt at an interest rate of 8 percent, and its unlevered cost of capital is 12 percent. What is the value of the firm according to M&M Proposition I with taxes? Should TechnoWorks change its debt-equity ratio if the goal is to maximize the value of the firm?

TechnoWorks has an expected EBIT of $50,000 in perpetuity and a tax rate of 30 percent. The firm has $100,000 in outstanding debt at an interest rate of 8 percent, and its unlevered cost of capital is 12 percent. What is the value of the firm according to M&M Proposition I with taxes? Should TechnoWorks change its debt-equity ratio if the goal is to maximize the value of the firm?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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Give both answer correctly. If u don't know correct answer then don't accept it. Otherwise I will give u unhelpful rate. Need step by step accurate answer
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