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Wilson Corporation is an unlevered company that owns assets with a market value of $5 million. The firm is considering a recapitalization that would involve

Wilson Corporation is an unlevered company that owns assets with a market value of $5 million. The firm is considering a recapitalization that would involve adding long-term debt and using the debt proceeds to repurchase shares. The CFO of Wilson Corporation has put together the following table with regards to the use of debt in the firms capital structure:

Amount of debt PV of tax shield Estimated PV of financial distress costs
$1,000,000 $350,000 $160,500
$1,500,000 $525,000 $193,375
$2,000,000 $700,000 $341,500
$2,500,000 $875,000 $705,000
$3,000,000 $1,050,000 $1,021,000

Among the choices in the table, what is the optimal level of debt for Wilson Corporation?

A.) $1,000,000

B.) $1,500,000

C.) $2,000,000

D.) $2,500,000

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