Market value of the firm-locomotive corporation

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Locomotive Corporation is planning to repurchase part of its common stock by issuing $4.65M corporate debt. As a result, the firm's debt-equity ratio is expected to rise from 25 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The company's cost of debt is 6.7 percent per year for both current and new debt. Locomotive Corporation pays no taxes.

Use a balance sheet to show what is the market value of the firm before and after the repurchase announcement?

Reference no: EM132675808

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