Hanover Tech Is Currently an All-Equity Company That Has 145,000

question 13

Multiple Choice

Hanover Tech is currently an all-equity company that has 145,000 shares of stock outstanding with a market price of $22 a share. The current cost of equity is 13.9 percent and the tax rate is 21 percent. The company is considering adding $1.5 million of debt with a coupon rate of 7.5 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity?

• A) $2.209 million
• B) $2.005 million
• C) $2.312 million
• D) $2.012 million
• E) $2.108 million

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Definitions:

Creditor Claims

Rights or legal entitlements of creditors to receive payment or restitution from a debtor.

Partnership Interest

The ownership share or stake a particular partner has in a partnership, which determines their portion of the profits or losses.

Personal Assets

Items of value owned by an individual, including cash, investments, real estate, and personal belongings.

Limited Partnerships

A business structure where at least one partner has limited liability to the extent of their investment while at least one other has unlimited liability.