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Determine the value of the firm with the debt

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Jellybean Co, is currently all-equity financed and has a value of $800,000. It is planning to issue $200,000 of permanent debt with an interest rate of 7% and use the proceeds to buy back stock. With the debt there is a 15 percent probability of financial distress, in which case the firm will have a present value of $215,000. Given a tax rate of 30 percent, what will be the value of the firm with the debt?

Reference no: EM132500803

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