The actual ﬁrm value is equal to the M&M Proposition I with tax value minus the ﬁnancial distress
costs.

Name: The actual ﬁrm value is equal to the M&M Proposition I with tax value minus the ﬁnancial distress costs.
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Question

Quizplus · Accepted Answer

This statement is true. According to M&M Proposition I with tax, the firm value is equal to the value of an unlevered firm plus the tax shield from debt. However, financial distress costs must be subtracted from this value to arrive at the actual firm value.

The Actual ﬁRm Value Is Equal to the M&M Proposition