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

question 35

Multiple Choice

Gail's Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon rate of 8% to her capital structure. The debt will be sold at par value. What is the levered value of the equity?

• A) $2.4 million
• B) $2.7 million
• C) $3.3 million
• D) $3.7 million
• E) $3.9 million

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Definitions:

Meaningfulness Of Work

Refers to the degree to which an individual perceives their work to have value and importance, contributing to their overall sense of purpose.

Social Factors

Aspects of society and its social structure that influence individual behavior, attitudes, and interactions.

Stress

The term used to describe the physical, emotional, cognitive, and behavioral responses to events that are appraised as threatening or challenging.

Stereotype Threat

Condition in which being made aware of a negative performance stereotype interferes with the performance of someone that considers himself or herself part of that group.