CIMA F3 Question Answer
A company is funded by:
• $40 million of debt (market value)
• $60 million of equity (market value)
The company plans to:
• Issue a bond and use the funds raised to buy back shares at their current market value.
• Structure the deal so that the market value of debt becomes equal to the market value of equity.
According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:
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