Gioanni Inc., has GH1 million in earnings before interest and taxes. Currently it is all-equity-...
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Gioanni Inc., has GH1 million in earnings before interest and taxes. Currently it is all-equity- financed. It may issue GH3 million in perpetual debt at 15 percent interest in order to repurchase stock, thereby recapitalizing the corporation. There are no personal taxes. a. If the corporate tax rate is 40 percent, what is the income available to all security holders if the company remains all-equity-financed? If it is recapitalized? b. What is the present value of the debt tax-shield benefits? c. The equity capitalization rate for the company's common stock is 20 percent while it remains all-equity-financed. What is the value of the firm if it remains all-equity financed? What is the firm's value if it is recapitalized
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