Multiple Choice
The Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share.The current cost of equity is 12 percent and the tax rate is 34 percent.The firm is considering adding $1.25 million of debt with a coupon rate of 8 percent to its capital structure.The debt will be sold at par value.What is the levered value of the equity?
A) $2,535,000
B) $5,035,000
C) $3,785,000
D) $3,015,000
E) $4,015,000
Correct Answer:
Verified
Correct Answer:
Verified
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