Joes Manufacturing is recapitalizing by issuing $250 
            in debt and using the proceeds to buy back stock. After the 
            recapitalization, what is the firm's new value?

Fatima1102 ?

It stays the same.

Merton Miller, who taught at the University of Chicago?s Graduate
School of Business when I was there and is a very funny guy, explains
the irrelevance of borrowing in the capital structure this way:

"Say you have a pizza, and it is divided into four slices. If you cut
it into eight slices, you still have the same amount of pizza. We
proved that! Rigorously!"

Arnold Kling -- AP Economics
"Corporate Finance: Leverage and the Modigliani-Miller Theorem" (undated)
http://arnoldkling.com/econ/saving/corpfin.html

Can you believe that they gave him a Nobel Prize for that?  Actually,
Franco Modigliani won it in 1985.  Miller won it in 1990:

NobelPrize.org
?The Sveriges Riksbank (Bank of Sweden) Prize in Economic Sciences in
Memory of Alfred Nobel,? (Lindbeck)
http://nobelprize.org/economics/articles/lindbeck/

Here?s a good synopsis of the Modigliani-Miller or M&M theorem:

Investopedia.com
?Modigliani-Miller Theorem?
http://www.investopedia.com/terms/m/modigliani-millertheorem.asp



Google search strategy:
?Modigliani-Miller? Nobel Prize

Best regards,

Omnivorous-GA