Thompson & Thomson is an all equity ﬁrm that has 500,000 shares outstanding.The company is in the process of borrowing €8 million at 9% interest to repurchase 200,000 shares of the outstanding equity.What is the value of this
ﬁrm if you ignore taxes?
A)€20.0 million
B)€20.8 million
C)€21.0 million
D)€21.2 million
E)€21.3 million

Question

Quizplus · Accepted Answer

The value of the firm does not change due to the financing decision according to the Modigliani-Miller theorem without taxes. The firm is simply replacing equity with debt, but the total value remains the same.

Thompson & Thomson Is an All Equity ﬁRm That Has