Firm Short and Firm Long are both adding additional debt to their companies. Firm short...
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Firm Short and Firm Long are both adding additional debt to their companies. Firm short takes out a $25 million loan for one year that will not be renewed. Firm long takes out a $25 million loan that will be perpetually renewed and remain on the firm's balance sheet indefinitely. If both firms pay taxes but no other capital market imperfections exist (bankruptcy costs, etc.), how will the additional debt impact the firm values of these two firms? O Value of Short and Long will decrease the same amount O Value of Short and Long will increase the same amount O Both firm values are unchanged O Value of Long will increase more than Short O Value of Long will decrease more than Short
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