An Unlevered Firm Currently Has a Value of $15 Million

question 31

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

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