Cost of financial distress, Finance Basics

Assume a levered firm has a current value of $650,000,000. The firm currently has $259,258,527.20 in debt. Without debt, firm value (i.e. VU) would be $580,000,000. Ignore the cost of financial distress.

a. If the firm goes to a debt-to-equity ratio of 2/3, what will the firm be worth?

b. If the firm goes to a debt-to-equity ratio of 2, what will the firm be worth?


Posted Date: 3/13/2013 6:22:50 AM | Location : United States

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