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The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.7...

The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.7 million. The loan will be repaid in equal principal installments over the next two years and has an interest rate of 7 percent. The company’s tax rate is 21 percent.

  

According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
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Answer #1

Under the MM theory the value of a levered firm with tax is equal to Value of levered firm = Value of unlevered firm +Tax rat

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