An Unlevered Firm with a Market Value of $1 Million

question 246

Multiple Choice

An unlevered firm with a market value of $1 million has 50,000 shares outstanding. The firm restructures itself by issuing 200 new bonds with face value $1,000 and an 8% coupon. The firm uses the proceeds to repurchase outstanding stock. In considering the newly levered versus formerly unlevered firm, what is the break-even EBIT? Ignore taxes.

• A) $25,000
• B) $50,000
• C) $75,000
• D) $80,000
• E) $95,000

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Definitions:

Differentiation

The process by which cells or tissues undergo a change toward a more specialized form or function, often in the context of development.

Apoptosis

Programmed cell death, a process by which cells systematically dismantle themselves in response to specific signals.

Normal Development

The process by which an organism grows and develops in a manner considered typical for its species, following a standard sequence of stages.

Hox Gene Clusters

Groups of genes found in many animals that regulate the development of anatomical structures along the body axis from head to tail.