A Firm Has an Operating Profit of $300,000, Interest of $35,000

Multiple Choice

A firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm's target capital structure is set at a mix of 40 percent debt and 60 percent equity. Assuming this as the optimum capital structure, the value of the firm is ________.

A) $1.4 million
B) $2.2 million
C) $1.8 million
D) $6.0 million