The market value of the leverage firm is equal to the market value of the unleve

Question

The market value of the leverage firm is equal to the market value of the unleverage firm;

A. Plus the present value of tax shields plus the present value of financial distress costs plus the present value of agance costs.

B. Plus the present value of tax shields minus the present value of financial distress costs plus the present value of agency costs.

C. Minus the present value of tax shields minus the present value of financial distress costs minus the present value of agency costs.

D. Plus the present value of tax shields minus the present value of financial stress costs minus the present value of agency costs.

Explanation / Answer

Hi,

Option D (Plus the present value of tax shields minus the present value of financial stress costs minus the present value of agency costs) is correct.

Thanks.

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