Consider MMT, an unlevered firm worth $1,000 million funded entirely with equity. The firm has...
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Consider MMT, an unlevered firm worth $1,000 million funded entirely with equity. The firm has 10.0 million shares of common stock outstanding, a 28.0% tax rate and can borrow money at a 6.00% interest rate. The company is considering a restructuring where it would issue $200 million in debt and use the proceeds to repurchase shares of stock. Assume the $200 million in debt will be outstanding in perpetuity. Assume there is no impact on potential distress costs at the proposed level of leverage. Please answer the following 4 questions and be sure to show all work and mark your answer clearly in an uploaded excel file. A. What will MMT's annual tax shield from interest be if it goes through with the restructuring? B. According to Modigliani and Miller Proposition I (including the effect of taxes) what will the total value of the firm be after restructuring? C. According to Modigliani and Miller Proposition I (including the effect of taxes) what should MMT's stock price be after restructuring? D. What will MMT's Debt to Equity ratio be if the company goes through with the proposed restructuring
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