United Landscaping is an all equity firm that has 140,000 shares of stock outstanding. The company is in the process of borrowing $1.2 million at 8% interest to repurchase 30,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?

Question

Quizplus · Accepted Answer

The value of the firm in an all-equity scenario (ignoring taxes) remains unchanged when substituting debt for equity due to the Modigliani-Miller theorem. Initially, the firm is all equity, so borrowing $1.2 million to repurchase shares does not affect the overall firm value. The value of the firm before the transaction is the same as after, which is not directly given but can be inferred to remain constant, making the correct answer based on the information provided and the principles of corporate finance.

United Landscaping Is an All Equity Firm That Has 140,000