Simpson Ltd is a small IT company, which has 2 million shares outstanding and a share price
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Question:
Simpson Ltd is a small IT company, which has 2 million shares outstanding and a share price of $20 per share. The management of Simpson plans to increase debt and suggests it will generate $3 million tax shield benefits in total present value. If the share price of Simpson increased to $21 on the announcement of this plan, calculate the total value of financial distress cost expected by the market. Assume the market is efficient and the trade-off theory holds.
Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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