RoTek Has a Capital Structure of $300,000 in Equity and $300,000

question 61

Multiple Choice

RoTek has a capital structure of $300,000 in equity and $300,000 in perpetual debt. The firm's cost of equity is 14% and its cost of debt is 9%. If the firm has an expected, perpetual net operating income of $120,000 and a marginal tax rate of 40%, what is the market value of RoTek? Assume all net income is paid out as dividends.

• A) $698,571
• B) $814,286
• C) $818,571
• D) $55,800

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Definitions:

Continuous Process

A production process that is non-stop and operates continuously over long periods.

Applied Factory Overhead

The portion of overhead costs that are allocated to produced goods based on a predetermined rate or method.

Direct Materials

Raw materials that can be directly attributed to the production of goods, considered a variable cost in manufacturing.

Continuous Process

A production process in which raw materials are continuously fed into the process and products are continuously output.