Based on the information in Table 3-1, assuming that no common stock was repurchased during
the year, the firm issued how much new common stock during 2010?
A) $500 B) $2,000 C) $1,500 D) $1,000
C
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In this problem, we admit only one real-world factor in an otherwise ideal capital market. This real world factor is corporate taxation; specifically that interest payments on debt are deductible while dividend payments are not deductible
Suppose Delaware East, Inc has until now been an all-equity firm with a market value of $100 mn. Now, the firm decides to increase its leverage by issuing $40 mn. in debt, with the proceeds being used to pay a dividend to shareholders. Assuming that this debt will be a permanent part of the firm's capital structure, and that the firm's tax rate is 34%, and accounting for the deductibility of the interest on the debt, what is the total market value of the firm after the recapitalization? a. $113.6 mn. b. $100 mn. c. $73.6 mn. d. $13.6 mn. FORMULA: VL=VU+?cD