Corporate income tax rate on firm optimal capital structure

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Reference no: EM131928002

You are the CFO of a large firm. You have heard news about the tax reform bill and are in the process of assessing its impact on your company. One of the main provisions in the bill is a substantial reduction in the corporate income tax rate. The textbook describes various capital structure theories such as the Modigliani and Miller (M&M) theory, the static theory of capital structure and the pecking order theory. Use these theories to analyze the impact of a reduction in the corporate income tax rate on a firm’s optimal capital structure. Then draft a memo to the CEO outlining your recommendations regarding any actions to be taken such as issue or buyback of debt as well as issue or buyback of stock.

Reference no: EM131928002

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