The Zercon Company Has EBIT of $50,000 and Market Value

question 25

Multiple Choice

The Zercon Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. Zercon has a 35% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Zercon.

• A) $263,080.
• B) $332,143.
• C) $258,537.
• D) $162,948.
• E) $120,000.

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Definitions:

Securities Act

A law or legislation that regulates the issuance and sale of securities to protect investors against misrepresentation, deceit, and other frauds.

Proxy

A document evidencing the transfer of a shareholder’s voting right to an appointee, either with instructions for voting, or allowing discretion to be exercised by the appointee, at a meeting of shareholders of the corporation.

Transferred Right

Involves transferring a legal right from one party to another, which could include property rights, contractual rights, or other legal entitlements.

Corporate Ballot

A voting system utilized within corporations whereby shareholders vote on company matters, either in person at meetings or via proxy.