MG Movers Can Borrow at 7

Multiple Choice

M.G. Movers can borrow at 7.5 percent. The firm currently has no debt, and the cost of equity is 16 percent. The current value of the firm is $540,000. What will the value be if the firm borrows $160,000 and uses the proceeds to repurchase shares? The corporate tax rate is 34 percent.

A) $528,000
B) $540,000
C) $552,000
D) $571,000
E) $594,400