Assume the Following Selected Financial Information About a Firm That

Multiple Choice

Assume the following selected financial information about a firm that is about to restructure capital by exchanging equity for debt: $\begin{array}{ll}\text {Present debt level }&=\$ 0\\\text {Proposed equity for debt exchange }&=\$ 1,000,000\\\text { Present EBIT}&=\$ 500,000\\\text { Interest rate on debt}&=6 \% \\\text { Corporate tax rate}&=40 \%\\\text {Current market value of equity }&=\$ 3,000,000 \\\end{array}$
What is the market value of the firm's equity after the restructuring according to the Modigliani-Miller model with taxes but without bankruptcy costs?

A) $2,000,000
B) $2,264,000
C) $2,400,000
D) None of the above