The shareholders of Company B are concerned that the company has taken on too much debt and
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The shareholders of Company B are concerned that the company has taken on too much debt and have come to you for advice. The company's unleveraged value is $7,000,000, and it recently borrowed $2,000,000. In the event that the company goes bankrupt, bankruptcy costs have been estimated at $1,000,000. If the probability of bankruptcy is 15%, and the company pays tax at 40% calculate the value of the firm and advise the shareholders accordingly.
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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