Answers
1)
with corporate taxes as the only market imperfection,
let the tax rate = t
operating income of the firm = O
cost of capital for firm without leverage = r
let value of firm without leverage = v = [O*(1-t)/r]
amount of debt with the company = d
the value of firm with leverage = v+ (t*d)
hence in this case value of firm with leverage > value of firm without leverage
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