Question: Using the graph above explain how a financial manager determines the optimal leverage of a firm. A E F B D c I G A:

Using the graph above explain how a financial manager determines the

Using the graph above explain how a financial manager determines the optimal leverage of a firm.

A E F B D c I G A: Value of the firm (VL) B: Maximum firm value (V2") C: Value of firm with no debt (V) D: Actual firm value E: Present value of financial distress costs F: Present value of tax shield on debt G: Total debt (D) H: Optimal amount of debt (D) I: Vi = V. + T. XD

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