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Suppose that your firm's current unlevered value is $800,000, and its marginal corporate tax rate is 35%. Also, you model the firms PV of financial distress as a function of its debt ratio according to the relation: PV of financial distress=800,000 x (D'V)^2. What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock?

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Financial Management, Finance

Category:- Financial Management
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