Question

Quillpen Company is unlevered and has a value of $70 billion. An otherwise identical but levered firm finances 45% of its capital structure with debt. Under the MM zero-tax model, what is the value of the levered firm

Answer 1

Answer:

$70,000,000

Explanation:

Value of levered firm = Value of unlevered firm + (Debt*Tax rate)

Value of levered firm = $70,000,000 + ($45,000,000×45%×0%)

Value of levered firm = $70,000,000 + $0

Value of levered firm =  $70,000,000

Hence, Value of the levered firm is $70,000,000