Consider the Modigliani and Miller world of corporate taxes. An unlevered (all-equity) firm value is $500 million. By adding debt, the annual interest expense is $100 million, the corporate tax rate is 30%, and the discount rate on the tax shield is 8%. What is the gain to leverage or the value added from issuing debt?

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The Answer of Consider the Modigliani and Miller world of corporate taxes. An unlevered (all-equity) firm value is $500 million. By adding debt, the annual interest expense is $100 million, the corporate tax rate is 30%, and the discount rate on the tax shield is 8%. What is the gain to leverage or the value added from issuing debt?

Consider the Modigliani and Miller World of Corporate Taxes