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What is the value of abc

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The common stock and debt of ABC Incorporated are valued at $60 million and $30 million, respectively. Investors currently require a 15% return on the common stock and a 7% return on the debt.

a) Assumes the MM model with no taxes. What is the value of ABC and its WACC?

b) The company plans to raise additional $20 million of debt to buy back its common shares. Assume the MM model with no taxes. Will the value of the firm and its WACC change? Explain with supporting calculations.

c) Now suppose a 25% corporate tax will be levied on corporate income, and there are no personal taxes. Does your conclusion in part b) change? Explain with supporting calculations.

Reference no: EM133114541

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