You own all the equity of R.G.C. I Ltd. The company has no debt.  The company’s annual cash flow is GH¢900,000 before interest and taxes. The company tax rate is 35%. You have the option to exchange 1/2 of your equity position for 5% bonds with a face value of GH¢2,000,000. What is the value of the unlevered firm? What is the value of the levered firm? Assuming a bankruptcy cost of GH¢8000, what is the value of the levered firm after considering bankruptcy cost?

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