Multiple Choice
Consider the Modigliani and Miller world of corporate taxes. An unlevered (all-equity) firm value is $500 million. By adding debt, the annual interest expense is $100 million, the corporate tax rate is 30%, and the discount rate on the tax shield is 8%. What is the gain to leverage or the value added from issuing debt?
A) $500 million
B) $875 million
C) $938 million
D) $1,000 million
Correct Answer:
Verified
Correct Answer:
Verified
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