Mm model with corporate taxes

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MM Model with Corporate Taxes

An unlevered firm has a value of $800 million.

An otherwise identical but levered firm has $60 million in debt at a 5% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 11%. No growth is expected. Assuming the federal-plus-state corporate tax rate is 25%, use the MM model with corporate taxes to determine the value of the levered firm.

Reference no: EM133056776

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