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A Consultant Has Collected the Following Information Regarding Young Publishing

Question 70

Multiple Choice

A consultant has collected the following information regarding Young Publishing: A consultant has collected the following information regarding Young Publishing: The company has no growth opportunities (g = 0) , so the company pays out all of its earnings as dividends (EPS = DPS) . The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%. If the company makes this change, what would be the total market value (in millions) of the firm? A) $3,200 B) $3,600 C) $4,000 D) $4,200 E) $4,800 Medium/Hard: The company has no growth opportunities (g = 0) , so the company pays out all of its earnings as dividends (EPS = DPS) . The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%. If the company makes this change, what would be the total market value (in millions) of the firm?


A) $3,200
B) $3,600
C) $4,000
D) $4,200
E) $4,800
Medium/Hard:

Correct Answer:

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