Alexandria's Dance Studio Is Currently an All Equity Firm That

question 90

Multiple Choice

Alexandria's Dance Studio is currently an all equity firm that has 60,000 shares of stock outstanding with a market price of $24 a share. The current cost of equity is 11% and the tax rate is 40%. Alexandria is considering adding $2 million of debt with a coupon rate of 7% to her capital structure. The debt will be sold at par value. What is the levered value of the equity?

• A) $.12 million
• B) $.24 million
• C) $1.12 million
• D) $2.24 million
• E) $2.84 million

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Definitions:

Habituation

The process by which an individual becomes accustomed to a stimulus after repeated exposure, leading to a decrease in response.

Mental-Scale Items

Assessments or tasks designed to measure cognitive abilities, often used in psychological and educational testing.

Bayley Test

A developmental scale designed to assess motor, language, and cognitive abilities of infants and toddlers.

Examiner Demonstrates

A scenario where the person administering a test or evaluation shows or exemplifies a task or behavior to a participant or subject.