An Unlevered Firm Has an EBIT = $250,000, After-Tax Net

Multiple Choice

An unlevered firm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%. A levered firm with the same assets and operations has $1.25 million in face value debt paying an 8% annual coupon; the debt sells for par value in the marketplace. What is the value of the levered firm? The tax rate is 34%.

A) $1,250,000
B) $1,375,000
C) $1,666,667
D) $1,800,000
E) $2,625,000