When the costs of financial distress are included, the value of a levered firm is given by Value of levered firm = Value of unlevered firm + PV (tax shield)− PV (costs of financial distress).

Question

Quizplus · Accepted Answer

This is the correct formula for calculating the value of a levered firm, as it takes into account the tax shield that comes with having debt, as well as the potential costs of financial distress that can arise from having too much debt.

When the Costs of Financial Distress Are Included, the Value