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An unlevered firm currently has EBIT = $850,000. The firm has a tax rate of 30% and a required return = 8%. The firm wishes
An unlevered firm currently has EBIT = $850,000. The firm has a tax rate of 30% and a required return = 8%. The firm wishes to replace $1,250,000 of its equity with $1,250,000 of debt. By increasing its leverage, the PV of the expected costs of financial distress would rise from 0 to $120,000. What is the value of the levered firm if it goes ahead with this plan
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