Use the following information to answer the question(s)below.
d'Anconia Copper 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:
-If in the event of distress,the present value of distress costs is equal to $25 million,then the optimal level of debt for d'Anconia Copper is:

Question

Use the following information to answer the question(s)below.
d'Anconia Copper 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: 
-If in the event of distress,the present value of distress costs is equal to $25 million,then the optimal level of debt for d'Anconia Copper is:

Quizplus · Accepted Answer

The optimal level of debt is typically where the tax shield benefits of debt are balanced by the costs of financial distress. If the present value of distress costs is $25 million, the optimal debt level would be where the tax shield equals this amount, which is often half of the distress cost, hence $50 million.

Use the Following Information to Answer the Question(s)below