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Please answer for all 3 numbers Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of
Please answer for all 3 numbers
Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt: 5. Suppose the firm has a beta of zero, so that the appropriate discount rate for financial distress costs is the risk-free rate of 5%. Which level of debt above is optimal if, in the event of distress, the firm will have distress costs equal to a. $2 million? b. $5 million? i Data Table c. $22 million? a. $2 million? If distress costs are equal to $2 million, the optimal level of debt is $ million. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Debt Level (in $ million) 50 60 70 0 40 80 90 PV (interest tax shield, $ million) Probability of Financial Distress 0.00 0% 0.76 0% 0.95 1% 1.14 2% 1.33 7% 1.52 16% 1.71 31% Print DoneStep by Step Solution
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