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Should the company change its debt-equity ratio

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Reference no: EM132767024

Question - Tool Manufacturing has an expected EBIT of $63,000 in perpetuity and a tax rate of 21 percent. The firm has $115,000 in outstanding debt at an interest rate of 7 percent and its unlevered cost of capital is 12 percent. What is the value of the company according to MM Proposition I with taxes? Should the company change its debt-equity ratio if the goal is to maximize the value of the company? Explain.

Reference no: EM132767024

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