A 500 million firm is financed by 250 million in debt and, Financial Management

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A 500 million firm is financed by 250 million in debt and

A $500 million firm is financed by $250 million in debt and $250 million in equity. It issues $150 million in debt and repurchases $50 million in equity. The market believes the $100 million increase in value will result in wasteful spending by managers, which costs $5 million in NPV.

However, the higher $150 million in new debt will also create $20 million in additional tax shelter NPV. What is the firm's new value and new debt/equity ratio?

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Financial Management: A 500 million firm is financed by 250 million in debt and

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Financial Management: A 500 million firm is financed by 250 million in debt and

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