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This note provides an interactive illustration of the Modigliani-Miller theory of the effect of debt tax shields on the value of the levered firm. Students must calculate (1) the effect of hypothetical changes in capital structure on firm value, and (2) the effect of a major recapitalization on the share price of Koppers Company using a set of incomplete worksheets. After completing the worksheets, students compare results among the problems.

This case introduces the valuation and comparison of capital investments as students evaluate eight projects' cash flows and rank them in terms of economic attractiveness using net present value (NPV), internal rate of return (IRR), return on investment (ROI), profitability index, and payback.