When Financial Distress Is a Possibility, the Value of a Levered

question 46

Multiple Choice

When financial distress is a possibility, the value of a levered firm is a function of the

• A)value of the firm if all-equity-financed.
• B)value of the firm if all-equity-financed plus the present value of tax shield.
• C)value of the firm if all-equity-financed plus the present value of tax shield minus the present value of costs of financial distress.
• D)value of the firm if all-equity-financed plus the present value of tax shield minus the present value of costs of financial distress minus the present value of omitted dividend payments.

---

Definitions:

Conflict

A serious disagreement or argument, typically a prolonged one, that can occur between people, groups, or nations.

Good Faith

Conducting oneself with sincerity, honesty, and integrity in dealings with others, especially in the execution of contracts or negotiations.

UCC Section 1-203

A principle under the Uniform Commercial Code emphasizing good faith and fair dealings in the performance and enforcement of commercial contracts.

Cash on Delivery (COD)

A transaction method where payment for goods is made at the time they are delivered rather than in advance.