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The market value of a leveraged fi rm is equal to the market value of an unlever

ID: 2668008 • Letter: T

Question

The market value of a leveraged fi rm is equal to the market value of an unleveraged
firm
a. minus the present value of tax shields minus the present value of fi nancial
distress costs minus the present value of agency costs.

b. plus the present value of tax shields minus the present value of fi nancial distress
costs minus the present value of agency costs.

c. plus the present value of tax shields plus the present value of fi nancial distress
costs plus the present value of agency costs.

d. plus the present value of tax shields minus the present value of fi nancial distress
costs plus the present value of agency costs.

Explanation / Answer

b

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