Corporate taxes-what is the value of the levered firm

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A firm with no debt financing has a firm value of $34 million. It has a corporate marginal tax rate of 38 percent. The firm’s investors are estimated to have marginal tax rates of 28 percent on interest income and a weighted average of 21 percent on stock income. The firm is planning to change its capital structure by issuing $7 million in debt, and repurchasing $7 million of common stock.

a. According to MM with corporate taxes, what is the value of the levered firm?

b. According to Miller with corporate and personal taxes, what is the value of the levered firm?

Reference no: EM131178752

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