What is the pv of financial distress costs the firm

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The firm's current share price is $38 with 10 million shares outstanding.

Suppose the firm announces plans to increase its leverage by borrowing $100 million and repurchasing shares. Suppose the only market imperfections are corporate taxes with 21% tax rate and financial distress costs. If the share price rises to $40 after this announcement, what is the PV of financial distress costs the firm will incur as the result of this new debt? A) $ 1 million B) $ 2 million C) $19 million D) $20 million E) $41 million

Reference no: EM132602445

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