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Barclay Copr is operating where the corporate tax is 40%, personal income tax on bond investment...

Barclay Copr is operating where the corporate tax is 40%, personal income tax on bond investment is 30% while the personal tax on stock is 15%. If Barclay currently has $4M total market value of debt financing, what would be the value of the company of Barclay Corp? Assume the market value of Barclay Copr with no financial leverage is $15M.

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Answer #1

According to MM theory, the value of company would be

V (L) = V (U) + Corporate tax rate *Value of debt

Here V(L) = Value of levered firm

V(U) = Value of unlevered firm

V(L) = 15 Million + 0.40* 4 Million

= 15 million + 1.6 Million

= 16.6 Million

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