Problem:
Assume the marginal corporate tax rate is 30%. The firm has no debt in its capital structure. It is valued at $100 million.
Required:
Question: What would be the value of the firm if it issued $50 million in perpetual debt and repurchased the same amount of equity?
- $65 million
- $115 million
- $100 million
- $150 million
Note: Please show how to work it out.