An Unlevered fiRm Has an EBIT = $250,000, After-Tax Net

question 290

Multiple Choice

An unlevered firm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%. A levered firm with the same assets and operations has $1.25 million in face value debt paying
An 8% annual coupon; the debt sells for par value in the marketplace. What is the value of the
Levered firm? The tax rate is 34%.

• A) $1,250,000
• B) $1,375,000
• C) $1,666,667
• D) $1,800,000
• E) $2,625,000

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Definitions:

Time Series Data

Data collected at successive equally spaced points in time, often used to analyze trends, cycles, or seasonal variations.

Exponential Smoothing

A time series forecasting method for univariate data that involves using weighted averages of past observations, with the weights decaying exponentially as the observations get older.

One-Period Ahead Forecasting

A forecasting method that predicts the value of a variable for the next period based on past and current data, often used in time series analysis.

Seasonal Components

Periodic fluctuations in data that occur at regular intervals due to seasonal factors.