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marshall27 [118]
3 years ago
15

Suppose that your firm's current unlevered value, V*, is $800,000, and its marginal corporate tax rate is 35 percent. Also, you

model the firm's PV of financial distress as a function of its debt level according to the relation: PV of financial distress = 800,000 × ((D/V*)^2). What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock?
Business
1 answer:
max2010maxim [7]3 years ago
3 0

Answer:

$820,000

Explanation:

The computation of the firm's levered value is shown below:

Value of levered firm = Value of unlevered firm + Debt × tax -PV (financial distress)

Value of levered firm = $800,000 + $200000 × 35% - $800,0000 × (25%)^2

= $820,000

The 25% is come from

= $200,000 ÷ $800,000

= 25%

We simply applied the above formula to determine the levered value

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Answer:

(D) $71,446

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rounding to the nearest dollars: 71,446

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What can a food surplus lead to?
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In addition to the consumer product safety commission, the two federal agencies that play the most active role in protecting the
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In addition to the consumer product safety commission, the two federal agencies that play the most active role in protecting the public from unsafe products are the Treasury Department, the Commerce Department, and the Office of the U.S. Trade Representative.

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1 year ago
Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 2.20%. What rate of retu
muminat

Answer:

1.27%

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