A Firm Has an Operating Profit of $300,000, Interest of $35,000

question 74

Multiple Choice

A firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm's target capital structure is set at a mix of 40 percent debt and 60 percent equity. According to the traditional approach to capital structure, the value of the firm is

• A) $1.4 million.
• B) $6.0 million.
• C) $2.7 million.
• D) $2.0 million.

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Definitions:

The Joint Commission

An independent, not-for-profit organization that accredits and certifies health care organizations and programs in the United States.

American Medical Association

A professional association and lobbying group of physicians and medical students in the United States, aiming to promote the art and science of medicine for better public health.

Otorhinolaryngologist

A medical specialist focused on the treatment of diseases and conditions of the ear, nose, and throat (ENT), as well as related structures of the head and neck.

Nephrologist

A medical doctor specializing in the diagnosis and treatment of kidney diseases.