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Determine the present value of financial distress costs

Question:

If the value of a levered firm is $13,000,000, and the value of corresponding unlevered firm is $12,000,000, determine the present value of financial distress costs, if the firm has $5,000,000 of debt outstanding and is in the 40 percent tax bracket.

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Finance Basics: Determine the present value of financial distress costs

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