Your Firm Has Debt Worth $200,000, with a Yield of 9

question 31

Multiple Choice

Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is 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 is the value of your firm's tax shield, i.e., how much value does the use of debt add?

• A) $92,571
• B) $102,857
• C) $113,143
• D) $124,457
• E) $136,903

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Definitions:

Insight Therapies

A range of psychotherapeutic techniques aimed at helping clients understand the root causes of their psychological issues.

Behavior Modification

Behavior Modification is a therapeutic approach which involves changing undesirable behaviors through reinforcement, punishments, and other learning principles.

Gestalt Therapies

A form of psychotherapy that emphasizes personal responsibility and focuses on the individual's experience in the present moment, within the context of their environment, using the principles of Gestalt psychology.

Humanistic Therapy

A therapeutic approach focusing on self-exploration, recognizing individual free will, and the potential for personal growth and self-improvement.