Problem:
Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%.
Required:
Question: What is the value of the firm according to MM with corporate taxes?
a. $475,875
b. $528,750
c. $587,500
d. $646,250
e. $710,875
Note: Provide support for your rationale.