If Firm U Is Unlevered and Firm L Is Levered

question 54

Multiple Choice

If firm U is unlevered and firm L is levered, then which of the following is true:
I. VU = EU
II. VL = EL + DL
III. VL = EU + DL

• A) I only
• B) I and II only
• C) I, II, and III
• D) III only

Understand the financial metrics related to company's operation cycle.

Compute and interpret times interest earned ratio.

Determine a company's book value per share and its implications.

Understand the classification of different cash flows into operating, investing, and financing activities.

---

Definitions:

Interest Rate

The percentage charged or earned on an amount of money over a period, generally expressed annually.

Loan Proceeds

The amount of money provided to a borrower by a lender, typically for a specific purpose or project, which the borrower is obligated to repay under agreed terms.

Compounded Quarterly

A method where interest earned is calculated and added to the principal amount every quarter, leading to interest on interest.

Future Value

The value of an investment at a specified future date, based on an assumed rate of growth over time.