What is the firms new value and new debt equity ratio

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A $500 million firm is financed by $250 million in debt and $250 million in equity. It issues $150 million in debt and repurchases $50 million in equity. The market believes the $100 million increase in value will result in wasteful spending by managers, which costs $5 million in NPV.

However, the higher $150 million in new debt will also create $20 million in additional tax shelter NPV. What is the firm's new value and new debt/equity ratio?

Reference no: EM131243045

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