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Question: Tool Manufacturing has an expected EBIT of $


Tool Manufacturing has an expected EBIT of $57,000 in perpetuity and a tax rate of 21 percent. The firm has $134,000 in outstanding debt at an interest rate of 5.35 percent, and its unlevered cost of capital is 10.3 percent. What is the value of the firm according to M&M Proposition I with taxes? Should the company change its debt-equity ratio if the goal is to maximize the value of the firm? Explain.


2.99

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