Compute the value of the unlevered firm

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Here are book and market value balance sheets of Abantos. Assume that MM's theory holds with taxes. There is no growth, and the level of debt is expected to be permanent. Assume a 30% corporate tax rate.

Assets 1080 . Debt 400 and equity 680.

a. How much of the firm's value is accounted for the debt-generated tax shield?

b. Compute the value of the unlevered firm (Vu).

c. Now suppose that, in order to increase the value of the firm by 10%, Abantos issues new debt and repurchases equity. c.1) Calculate Abantos' debt. c.2) Calculate Abantos' Equity. c.3) Calculate Abantos' value.

Reference no: EM132757955

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