Perez & Perez (P&P), based in a country currently without any taxes, has an annual operating income (EBIT) of €3 million

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Perez & Perez (P&P), based in a country currently
without any taxes, has an annual operating income (EBIT) of €3
million in perpetuity. The company is currently 100 percent equity
financed and, based on its current capital structure, its
shareholders have a required rate of return of 12 percent. P&P
is considering issuing €10 million in debt and using the proceeds
to repurchase common shares. The debt will be issued at par and
will have an 8.0 percent coupon. If the country implements a 30
percent corporate tax rate and Modigliani and Miller's Propositions
I and II with taxes apply, the value of the
firm before the debt issuance and share
repurchase is closest to:
Group of answer choices
€35.7 million.
€25.0 million.
€17.5 million.
Perez & Perez (P&P), based in a country currently
without any taxes, has an annual operating income (EBIT) of €3
million in perpetuity. The company is currently 100 percent equity
financed and, based on its current capital structure, its
shareholders have a required rate of return of 12 percent. P&P
is considering issuing €10 million in debt and using the proceeds
to repurchase common shares. The debt will be issued at par and
will have an 8.0 percent coupon. If the country implements a 30
percent corporate tax rate and Modigliani and Miller's Propositions
I and II with taxes apply, the value of the
firm after the debt issuance and share
repurchase is closest to:
Group of answer choices
€28.0 million.
€17.5 million.
€20.5 million.