Should the company change debt-equity ratio

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Reference no: EM131908835

Tool Manufacturing has an expected EBIT of $64,000 in perpetuity and a tax rate of 35 percent. The firm has $95,000 in outstanding debt at an interest rate of 8.5 percent, and its unlevered cost of capital is 15 percent.

What is the value of the firm according to M&M Proposition I with taxes?

Should the company change its debt-equity ratio if the goal is to maximize the value of the firm? Explain.

Reference no: EM131908835

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