The actual value of a ﬁrm with debt is generally greater than the value of a ﬁrm without debt.

Question

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The use of debt can increase the value of a firm through the tax shield benefit of interest expense and the ability to take advantage of leverage to generate higher returns on equity. However, too much debt can also increase the risk of financial distress and bankruptcy, which can ultimately decrease the firm's value.

The Actual Value of a ﬁRm with Debt Is Generally