Bombay Company's Balance Sheet Is as Follows

question 61

Multiple Choice

Bombay Company's balance sheet is as follows:
(NWC = net working capital; LTA = long term assets; D = debt; E = equity; V = firm value) :

According to MM's Proposition I corrected for taxes, what will be the change in company value if Bombay issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 35% tax rate.

• A) +$140
• B) +$70
• C) $0
• D) -$70

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Definitions:

Diploid Cells

Cells that contain two sets of chromosomes, one set inherited from each parent.

Zygotes

The initial cell formed when two gamete cells (e.g., sperm and egg) are fused, representing the earliest stage of embryonic development in sexually reproducing organisms.

Homologous Chromosomes

Pairs of chromosomes in a diploid organism that are similar in shape, size, and genetic content, one inherited from each parent.

Prophase I

The first stage of meiosis I where homologous chromosomes pair up and exchange genetic material through recombination.