The Coffee Shop Has Expected Earnings Before Interest and Taxes

question 366

Multiple Choice

The Coffee Shop has expected earnings before interest and taxes of $14,600, an unlevered cost of capital of 12%, and debt with both a book and face value of $18,000. The debt has an annual 8.25%
Coupon. The tax rate is 35%. What is the value of the firm?

• A) $81,640
• B) $85,383
• C) $87,778
• D) $90,114
• E) $92,309

Recognize the advantages of using residual income over other performance measures.

Define and calculate return on investment (ROI).

Distinguish between intrinsic and extrinsic rewards.

Apply formulas to compute ROI and interpret the results.

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Definitions:

Hot Magma

Molten or partially molten rock beneath the Earth's surface, from which igneous rocks are formed.

Subduction

Subduction is a geological process in which one tectonic plate moves under another plate and into the mantle as the plates converge, typically occurring at oceanic trenches.

Juan de Fuca Ridge

A tectonic plate boundary located off the coast of the Pacific Northwest region of North America, characterized by seafloor spreading and volcanic activity.

Hot Spot

A region with significantly higher temperature than its surroundings, often related to volcanic activity or environmental anomalies.