Gail's Dance Studio Is Currently an All Equity fiRm That

question 34

Multiple Choice

Gail's Dance Studio is currently an all equity firm that has 80,000 shares outstanding with a market price of €42 a share.The current cost of equity is 12% and the tax rate is 34%.Gail is considering adding €1 million of debt with a
Coupon rate of 8% to her capital structure.The debt will be sold at par value.What is the levered value of the equity?

• A)€2.4 million
• B)€2.7 million
• C)€3.3 million
• D)€3.7 million
• E)€3.9 million

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Definitions:

Sleeping on a Regular Schedule

The practice of going to bed and waking up at the same times each day to maintain a stable sleep pattern.

Sequential Processing

A cognitive approach that involves analyzing and responding to information in a sequential, step-by-step manner.

Parallel Processing

The ability of the brain to simultaneously process incoming stimuli of differing quality, a key feature of neural function in both human and animal brains.

Dual Processing

The concept that information is frequently processed at the same time through distinct conscious and unconscious pathways in the brain.