An Unlevered Firm Has an EBIT = $250,000, After-Tax Net

question 104

Multiple Choice

An unlevered firm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%. A levered firm with the same assets and operations has $1.25 million in face value debt paying an 8% annual coupon; the debt sells for par value in the marketplace. What is the value of the levered firm? The tax rate is 34%.

• A) $1,250,000
• B) $1,375,000
• C) $1,666,667
• D) $1,800,000
• E) $2,625,000

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Definitions:

Market Segmentation Strategies

Market segmentation strategies involve dividing a broad target market into subsets of consumers, businesses, or countries that have, or are perceived to have, common needs, interests, and priorities, and then designing and implementing strategies to target them.

Proactive

Taking initiative by acting in advance of future situations rather than just reacting, thereby controlling circumstances by causing things to happen.

Reactive

Describes a response to events or situations rather than initiating or influencing them.

Customer Needs

The wants or requirements that consumers express to have satisfied by purchasing goods or services.