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An unlevered firm faces a corporate income tax rate of 25%. If the firm decides...

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Finance

An unlevered firm faces a corporate income tax rate of 25%. If the firm decides to issue bonds, it will pay an interest rate of 4%. If the firm uses the proceeds from a bond issue to retire outstanding stock, for each dollar that the firm borrows, the firm's value will ________.

Select one:

A.

increase by $1 minus $0.04 in interest expense

B.

increase by $0.25

C.

decrease by $1 minus $0.04 in interest expense

D.

decrease by $0.25

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