Question: Company A has assets worth $100,000,000. The compa…
Company A has assets worth $100,000,000. The company has a 0.2 debt-to-value ratio and keeps a constant-debt policy. Company A decides to unexpectedly reduce its debt by half, replaces it with equity and keeps it constant after then. The interest rate on debt is 7.50% and the tax rate is 36%. What is the new debt-to-value ratio?
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