The proceeds from sale of debt are used to buy back shares

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The personal tax rate on debt is 21% and the personal tax on equity is 10%. The corporate tax rate is 16%. There is a firm, initially with no debt and market value $3 billion. This firm decides to issue $200 million of perpetual risk-free debt paying the risk free interest rate of 3%. The proceeds from the sale of debt are used to buy back shares. What is the gain from such leverage, GL?

Reference no: EM131180535

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