Problem:
Suppose that your firm's current unlevered value is $800,000 and its marginal corporate tax rate is 35%. Also, you model the firm's PV of financial distress as a function of its debt ratio (D/V) according to the relation: PV of financial distress = 800,000 x (D/v)2 (squared).
Required:
Question: What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock?
Note: Please explain comprehensively and give step by step solution.