Homework Answers
Current value= 467000
Under new restructuring, 60% debt issued = Current value*Debt
%
467000*60%= 280200
As per MM approach, If Debt is issued, value of firm will increase
by Present Value of Interest tax shield
PV of interest tax shield = Debt*tax rate
280200*0.2
56040
So Value of new firm = Current value of unlevered firm + PV of
interest tax shield
467000+56040
523040
So New value of firm under MM approach will be $523040
Note : separate first question is Answered as HOMEWORKLIB policy
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