Bombay Company's balance sheet is as follows: (NWC = net working capital; LTA = long...
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Bombay Company's balance sheet is as follows: (NWC = net working capital; LTA = long term assets;D = debt; E= equity; V = firm value): Book values Market values NWC 200 2300 2500 500 D 2000 E 2500 V NWC LTA LTA 200 2800 3000 500 D 2500 E 3000 V According to MM's Proposition I corrected for taxes, what will be the change in company value if Bombay issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 35% tax rate. 1. +$70 2.-$70 3. +$140 4. $0
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