Gomez Computer Systems Has an EBIT of $200,000, a Growth

question 27

Multiple Choice

Gomez computer systems has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%. In order to support growth, Gomez must reinvest 20% of its EBIT in net operating assets. Gomez has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of 11%.
-According to the MM extension with growth, what is Gomez's unlevered value?

• A) $1,296,000
• B) $1,440,000
• C) $1,600,000
• D) $1,760,000
• E) $1,936,000

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Definitions:

Related Party Relationships

A relationship between a reporting entity and another entity that is controlled, directly or indirectly, by the reporting entity, controls the reporting entity, or is under common control with the reporting entity.

Significant Influence

A situation where an investor holds power to participate in the financial and operating policy decisions of an investee but does not control or jointly control those policies.

Associate

An entity over which the investor has significant influence.

Investor

An individual or organization that allocates capital with the expectation of receiving financial returns.