## Udy

80.00%

\$14,365

The value of the levered firm is estimated in Table 8.21 by aggregating the effects of the tax savings and the expected bankruptcy costs.

 Debt Ratio \$ Debt Unlevered Firm Value Tax Benefits Expected Bankruptcy Cost Value of Levered Firm 0% \$0 \$65,294 \$0 \$2 \$65,293 10% \$6,979 \$65,294 \$2,603 \$2 \$67,896 20% \$13,958 \$65,294 \$5,206 \$249 \$70,252 30% \$20,937 \$65,294 \$7,809 \$2,230 \$70,874 40% \$27,916 \$65,294 \$8,708 \$9,250 \$64,752 50% \$34,894 \$65,294 \$6,531 \$14,365 \$57,461 60% \$41,873 \$65,294 \$6,531 \$14,365 \$57,461 70% \$48,852 \$65,294 \$6,531 \$14,365 \$57,461 80% \$55,831 \$65,294 \$6,531 \$14,365 \$57,461 90% \$62,810 \$65,294 \$6,531 \$14,365 \$57,461

The firm value is maximized at between 20 and 30% debt, which is consistent with the results of the other approaches. These results are, however, very sensitive to both the estimate of bankruptcy cost as a percent of firm value and the probabilities of default.

apv.xls: This spreadsheet allows you to compute the value of a firm, with leverage, using the adjusted present value approach.

## Money Mogul

Get All The Support And Guidance You Need To Be A Success At Being A Money Mogul. This Book Is One Of The Most Valuable Resources In The World When It Comes To How to Maintain the Pledge to Fix Your Finances from Your New Yearâ€™s Resolution.

Get My Free Ebook