Firm L Has Debt with a Market Value of $200,000

question 1

Multiple Choice

Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what would Firm L's total value be if it had no debt?

• A) $358,421
• B) $377,286
• C) $397,143
• D) $417,000
• E) $437,850

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