NuTronics Inc. is currently un levered with a value of $1,000,000 and a marginal corporate tax rate of 40%. There are no personal taxes. The firm estimates the PV of its financial distress costs as 0.125 x Debt. What is the firm's levered value if it issues $500,000 of perpetual debt and repurchases share with the funds?

a. $1,000,000

b. $1,137,500

c. $1,020,000

d. $1,262,500

 

Answer rating: 100% (QA)

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