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M&M

M&M. Offspring Corporation has no debt. Its current total value is $160 million.
Ignoring taxes, what will Offspring's value be if it sells $50 million in debt? Suppose
now that Offspring's tax rate is 40 percent. What will its overall value be if it sells
$50 million in debt? Assume debt proceeds are used to repurchase equity.

Solution Preview

Current Toatl value of Equity = $160 milliom
Issues debt for $50 million and ...

$2.19