Assume a world with corporate tax rate of 50 and no, Financial Management

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Assume a world with corporate tax rate of 50 and no

Assume a world with corporate tax rate of 50% and no personal taxes. Company U has no debt, an operating income of $48m, a return on equity %20, and 3m shares outstanding. Company U decides to borrow $60m at and interest rate of 10% and use the proceeds to repurchase shares.

A) What is the market value of Company U before the debt issue?

B) What is the present value of the tax shield?

C) What are the stock price and the market value balance sheet after the share repurchase?

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Financial Management: Assume a world with corporate tax rate of 50 and no

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Financial Management: Assume a world with corporate tax rate of 50 and no

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