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BONUS. Dillards is considering issuing $3.25 million in bonds. The finance department states
that issuing the bonds will decrease the value of the firm. Accordingly, you know the finance
department believes the firm: a) currently is all-equity financed and adding debt will cause a
decrease in firm value. b) wants to issue too few bonds to obtain the most benefit from debt. c)
will suffer from a decrease in its WACC if the bonds are issued.

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