Back Woods Coffee Has Expected Earnings Before Interest and Taxes

question 27

Multiple Choice

Back Woods Coffee has expected earnings before interest and taxes of $34,500, an unlevered cost of capital of 14%, and debt with both a book and face value of $20,000. The debt has an annual 7%
Coupon. The tax rate is 35%. What is the value of the firm?

• A) $167,179
• B) $174,015
• C) $177,778
• D) $203,518
• E) $241,414

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Definitions:

System-2

Refers to a mode of thinking in Daniel Kahneman's dual-process theory, characterized by more deliberate, effortful, and analytical reasoning.

Liberal Arts

A range of subjects including literature, philosophy, mathematics, and social and physical sciences, aimed at imparting general knowledge and critical thinking skills.

Thoughtful Problem Solving

An approach to solving problems that involves careful consideration, planning, and decision making.

Power Differential Heuristic

A cognitive short-cut used to quickly assess and respond to situations based on perceived imbalances in power or authority.