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Proposed new capital structure

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Reference no: EM133111352

ABC Corp. is an unlevered firm and has an annual EBIT of $450,000 that is estimated to last in perpetuity. ABC Corp. has an unlevered cost of capital of 12% and a tax rate of 45%. Suppose it is considering adding $980,000 of debt at 8%. This new debt will add an estimated PV of financial distress cost of $175,000. What is the new value of ABC Corp. under this proposed new capital structure?

Reference no: EM133111352

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