Assume these facts about a levered firm: market value of interestâ€bearing debt = $370 and market value of common stock = $1,040. If the corporate income tax is 30% and Modigliani and Miller's theory of capital structure in a world with only a corporate income tax applies, calculate the market value of this firm if it were unlevered. If the firm were unlevered, the market value of the firm would be $1,040. Given the facts, what would the change in shareholders’ wealth equal if you recapitalized the firm by issuing $370 of common stock and buying back all of the $370 of interestâ€bearing debt?
The question belongs to Finance and it discusses about calculating change in shareholders’ wealth by issuing additional stock and buying back interest bearing debt.
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