UNLEV Has an Expected Perpetual EBIT = $4,000

question 35

Multiple Choice

UNLEV has an expected perpetual EBIT = $4,000. The unlevered cost of capital = 15% and there are 20,000 shares of stock outstanding. The firm is considering issuing $8,800 in new par bonds to
Add financial leverage to the firm. The proceeds of the debt issue will be used to repurchase equity.
The cost of debt = 10% and the tax rate = 34%. There are no flotation costs.
What is the value of UNLEV's equity after the restructuring?

• A) $11,792
• B) $12,600
• C) $12,819
• D) $13,592
• E) $16,461

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Definitions:

Explanation

Clarification, detailed account, or interpretation of a concept, term, or phenomenon.

Adjusting Entries

Transactions recorded at the end of the accounting interval to appropriately allocate profits and expenditures to the period they originated.

Unearned Revenue

Income received by a company for goods or services yet to be provided or delivered; it is recorded as a liability on the balance sheet until the service or product is delivered.

Net Income

The total profit or loss of a company after all expenses, taxes, and costs have been subtracted from total revenue.