I tried, as an exercise, to reconcile the DCF(FCFF), DCF(FCFE) and Market Value of Debt.Not only that I failed, it raised additional questions as to NPV concept.The example is follows.Assumptions:Investment (Capital) = 500Debt = 250 (50%), perpetuity bond, market interest rate 9% meaning that the market value of debt is 250. Interest = 250*0.09 = 22.5Equity = 250 (50%), cost of equity = 12%Tax = 35%No capex investment beyond the initialNo Changes in Working capitalNo depreciationAssume no change in probability of defaultWACC = 0.5*0.65*0.09 + 0.5*0.12 = 8.925%FCFF = 50 to perpetuityFCFE = FCFF ? Interest*(1-T) = 50 ? 22.5 * 0.65 = 35.375DCF(FCFF) = FCFF/WACC = 50/0.08925 = 560.224DCF(FCFE) = FCFE/(cost of equity) = 35.375/0.12 = 294.792MV(Debt) = DCF(FCFF) ? DCF(FCFE) = 560.224 ? 294.792 = 265.432It looks like the debt holders have positive NPV from this debt investment, which cannot be true. At the end of the day, they will get exactly the coupons for perpetuity ? and their market value is exactly 250.So, why is MV (debt) is higher than 250, which was the market value in the first place?This project creates value (positive NPV). Why is a part of the created value attributed to debt holders? Why does not all created value go to equity holders?What am I missing?