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Which of the following is likely to happen if the firm faces significant bankruptcy costs? The present value of tax savings in the levered firm
Which of the following is likely to happen if the firm faces significant bankruptcy costs?
The present value of tax savings in the levered firm will be lower due to expected bankruptcy costs. | ||
The present value of tax savings in the levered firm will be unaffected but the value of the levered firm will be lower due to expected bankruptcy costs. | ||
The tax benefits from the marginal dollar in leverage will be lower. | ||
The MM first proposition graph of firm value as a function of leverage will be steeper due to higher risk. |
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