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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

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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: . 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. $3 million? b. $7 million? c. $30 million? Data table Data table

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