Consider the Modigliani and Miller World of Corporate Taxes

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 value of the firm after adding debt?

A) $500 million
B) $875 million
C) $938 million
D) $1,000 million