Lester's Has Expected Earnings Before Interest and Taxes of $74,800

question 30

Multiple Choice

Lester's has expected earnings before interest and taxes of $74,800, an unlevered cost of capital of 11.6 percent, and debt with both a book and face value of $84,000. The debt has a coupon rate of 6.35 percent and the tax rate is 24 percent. What is the value of this company?

• A) $403,136
• B) $347,600
• C) $510,229
• D) $387,094
• E) $428,507

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Definitions:

Break-even Sales

The amount of revenue needed to cover total costs, both fixed and variable, at which point a business neither makes a profit nor incurs a loss.

Wholesale Division

A segment of a company that deals with selling goods in large quantities at lower prices typically to retailers, rather than selling them directly to consumers.

Fixed Expenses

Expenses, like rent, wages, and insurance fees, that stay the same no matter how much is produced or sold.

Break-even Sales

The amount of revenue needed to cover total fixed and variable costs, resulting in zero profit or loss.