The Following Information Has Been Presented to You About the Gibson

question 7

Multiple Choice

The following information has been presented to you about the Gibson Corporation. $\begin{array}{lrlr}\text { Total assets } & \$ 3,000 \text { million } & \text { Tax rate } & 40 \% \\\text { Operating income (EBIT) } & \$ 800 \text { million } & \text { Debt ratio } & 0 \% \\\text { Interest expense } & \$ 0 \text { million } & \text { WACC } & 10 \% \\\text { Net income } & \$ 480 \text { million } & \text { M/B ratio } & 1.00 \times \\\text { Share price } & \$ 32.00 & \text { EPS }=\text { DPS } & \$ 3.20\end{array}$
The company has no growth opportunities (g = 0) ,so the company pays out all of its earnings as dividends (EPS = DPS) .The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%.If the company makes this change,what would be the total market value (in millions) of the firm?

• A) $3,200
• B) $3,600
• C) $4,000
• D) $4,200
• E) $4,800

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Definitions:

Piaget's Views

Theoretical perspectives on cognitive development proposed by Jean Piaget, emphasizing stages of growth from infancy to adolescence through which children's understanding of the world changes.

Developmental Level

A stage or phase in the growth or advancement of an individual, characterized by specific milestones in physical, emotional, or intellectual capacity.

Aggressive Tendencies

Traits or behavioral patterns characterized by anger or hostility that may lead to aggression towards others.

Macrosystem

The basic institutions and ideologies that influence the child.