Assume the following selected financial information about a firm that is about to restructure capital by exchanging equity for debt: Which of following would be true as a result of the restructuring according to the Modigliani-Miller model with taxes but without bankruptcy costs?
A)The new debt would contribute $600,000 to the value of equity due to its tax effect.
B)The market value of the remaining equity would be $1,500,000.
C)The total value of the firm would increase to $3,000,000.
D)All of the above.

Question

Assume the following selected financial information about a firm that is about to restructure capital by exchanging equity for debt:  Which of following would be true as a result of the restructuring according to the Modigliani-Miller model with taxes but without bankruptcy costs?
A)The new debt would contribute $600,000 to the value of equity due to its tax effect. 
B)The market value of the remaining equity would be $1,500,000. 
C)The total value of the firm would increase to $3,000,000. 
D)All of the above.

Quizplus · Accepted Answer

The Answer of Assume the following selected financial information about a firm that is about to restructure capital by exchanging equity for debt:  Which of following would be true as a result of the restructuring according to the Modigliani-Miller model with taxes but without bankruptcy costs?
A)The new debt would contribute $600,000 to the value of equity due to its tax effect. 
B)The market value of the remaining equity would be $1,500,000. 
C)The total value of the firm would increase to $3,000,000. 
D)All of the above.

Assume the Following Selected Financial Information About a Firm That