An Unlevered Firm Currently Has a Value of $100 Million

question 37

Multiple Choice

An unlevered firm currently has a value of $100 million.The firm has a tax rate of 30%.The firm wishes to replace $50 million of its equity with $50 million of permanent debt.By increasing its leverage,the PV of the expected costs of financial distress would rise from 0 to $10 million.What is the value of the levered firm if it goes ahead with this plan?

• A)$105 million
• B)$115 million
• C)$100 million
• D)$125 million
• E)$110 million

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Definitions:

Major Depressive Disorder

A mood disorder featuring major depressive episodes (episodes of depressed mood or loss of pleasure in life that lasts at least 2 weeks).

Pleasure

A broad class of mental states that humans and other animals experience as positive, enjoyable, or worth seeking.

2 Weeks

A time period equivalent to fourteen days.

Personality Disorders

A group of mental health conditions characterized by enduring patterns of behavior, cognition, and inner experience that differ significantly from societal norms, leading to distress or impaired functioning.