Your firm is considering issuing one-year debt, and hascome up with the following estimates of the value of the interesttax shield and the probability of distress for different levelsof debt:
Suppose the firm has a beta of zero, so that theappropriate discount rate for financial distress costs isthe risk-free rate of 5%.
Which level of debt above is optimal if, in the eventof distress, the firm will have distress costs equal to
a. $3 million?
b. $7 million?
c. $24 million?
Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the intere
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answerhappygod
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