An Unlevered Firm Has a Cost of Capital of 13

question 72

Multiple Choice

An unlevered firm has a cost of capital of 13.8 percent and earnings before interest and taxes of $214,560.Assume the firm borrows $430,000 at an interest rate of 5.85 percent.The applicable tax rate is 35 percent.What is the value of the levered firm?

• A)$1,209,518.70
• B)$1,007,018.11
• C)$1,161,108.70
• D)$1,246,082.19
• E)$1,105,018.11

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Definitions:

Stress

The amount of force divided by the area on which the force is applied.

Brittle Conditions

Circumstances under which materials or rocks break or fracture without significant plastic deformation when subjected to stress.

Relatively Shallow

Describes an area of water or feature that is not deep compared to its surroundings.

Fracturing

The act or process of breaking or cracking solid materials, often referring to rocks splitting due to physical, chemical, or mechanical forces.