Epiphany Is an All-Equity Firm with an Estimated Market Value

Multiple Choice

Epiphany is an all-equity firm with an estimated market value of $500,000.The firm sells $200,000 of debt and uses the proceeds to purchase outstanding equity.Compute the weight in equity and the weight in debt after the proposed financing and repurchase of equity.

A) 0.2,0.8
B) 0.25,0.75
C) 0.4,0.6
D) 0.6,0.4
E) 0.5,0.5