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Molotov Cranberry Cocktail Corp Finds That the Value of the Firm

Question 47

Multiple Choice

Molotov Cranberry Cocktail Corp finds that the value of the firm is equal to $100,000,000 with no debt.It knows that if it issues new debt,the value of the tax shield will be $3,000,000 while the value of the bankruptcy costs,outside agency costs and inside agency costs will be $1,000,000,$2,000,000,and $4,000,000 in that order.What will the value of Molotov be if it issues the debt?


A) $0
B) $96,000,000
C) $100,000,000
D) none of the above

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