If we are adding more debt to a LEVERED firm and we know the initial equity value
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Question:
If we are adding more debt to a LEVERED firm and we know the initial equity value of the firm, do we use the
V(L) = V(U) + PV(ITS)
V(L) = New equity value
V(U) = Initial equity value
PV(ITS) = Interest tax shield
formula to calculate the new value of equity of firm with additional debt. If so, why do we assume the initial equity to be unlevered?
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