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A project with an indefinite life has an initial investment is $10 million. The opportunity cost of capital is 12% with all-equity financing, the borrowing rate is 8%, and the firm borrows $4 million against the project.The debt is perpetual; it is refinanced each year.The corporate tax rate is 35%.,,If the debt is re-balanced each year to a fixed percentage of the project’s value, is the present value of the debt tax shield higher or lower than if it weren’t rebalanced? Explain why.

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