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(Use the following information for the next three questions). Consider a world with taxes but...

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Accounting

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(Use the following information for the next three questions). Consider a world with taxes but no other market imperfections. BLT machinery has a debt to equity ratio of 2/3. Its cost of equity is 20%, cost of debt is 4%, and tax rate is 35%. Assume that the risk-free rate is 4%, and market risk premium is 8%. Suppose the firm repurchases stock and finances the repurchase with debt, causing its debt to equity ratio to change to 3/2. Question 15 1 pts Now, assume tax rate is 0% (both before and after the capital structure change). In addition, we know that BLT machinery generates $20 million cash flow (EBIT) per year. According to MM Theory, how does the change in BLT's capital structure change its firm value? O BLT's value decreases by less than $70 million O BLT's value increases by more than $70 million O BLT's value increases by less than $70 million O BLT's value decreases by more than $70 million O BLT's value does not change

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