Multiple Choice
An unlevered firm currently has a value of $15 million.The firm has a tax rate of 40%.The firm wishes to replace $5 million of its equity with $5 million of permanent debt.By increasing its leverage,the PV of the expected costs of financial distress would rise from 0 to $1 million.What is the value of the levered firm if it goes ahead with this plan?
A) $10 million
B) $14 million
C) $15 million
D) $16 million
E) $20 million
Correct Answer:
Verified
Correct Answer:
Verified
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