Value of levered firm, If value of a levered firm is

Value of levered firm

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Reference no: EM1344404

If value of a levered firm is $13,000,000, and value of corresponding unlevered firm is $12,000,000, find out the present value of financial distress costs, if the firm has $5,000,000 of debt outstanding and is in the 40 percent tax bracket.

A. $500,000

B. $1,000,000

C. $3,000,000

D. $5,000,000

E. Cannot be determined because we are unable to calculate the present value of the tax savings.

Reference no: EM1344404

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