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An un evered firm currently has a value o $100 million. The firm has a tax ate of 30%. The r wishes to replace $50 milion of ts equit expected costs of financial distress would rise from 0 to $10 million. What is the value of the levered firm if it goes ahead with this plan? it S5 million of permanent i t increasing it leverage, the t he OA. $105 million B. $115 million Oc. $100 million D. $125 million OE. $110 million

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Answer #1

Value of levered firm:

= Value of unlevered firm+Debt×Tax rate

= $100+$50×30%

= $115

Hence, correct option is B. $115 million

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