Walsall Albion Co. currently has a debt-to-equity ratio of 0.35 and a total market value of €200 million. the company believes that increasing leverage (by taking on debt and repurchasing an equal euro amount of shares) will increase firm value; consequently, they have set a target debt-to-equity ratio of 0.6, which they plan to maintain permanently. If the marginal tax rate is 30%, then present value of the tax shield it will create?

Walsall Albion Co. currently has a debt-to-equity ratio of 0.35 and a total market value of €200 million. the company believes that increasing leverage (by taking on debt and repurchasing an equal euro amount of shares) will increase firm value; consequently, they have set a target debt-to-equity ratio of 0.6, which they plan to maintain permanently. If the marginal tax rate is 30%, then present value of the tax shield it will create?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 2P

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