What is the value of the firm according to modigliani

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Firm B has an expected EBIT of £40,000 in perpetuity and a tax rate of 28 per cent. The firm has £50,000 in outstanding debt at an interest rate of 6 per cent, and its unlevered cost of capital is 12 per cent.

Required:

(i) What is the value of the firm according to Modigliani and Miller (M&M) Proposition I with taxes?

(ii) Should firm B change its debt-equity ratio if the goal is to maximize the value of the firm? Explain.

Reference no: EM132766990

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