The Gift Mart Is an All-Equity Firm with a Current

Multiple Choice

The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percent. The estimated earnings before interest and taxes are $239,000 annually forever. Currently, the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest. The tax rate is 30 percent. What is the value of the unlevered firm?

A) $849,207
B) $853,571
C) $856,411
D) $919,307
E) $926,667