A Firm Sells a Product That It Realizes Is Short-Lived

question 76

Multiple Choice

A firm sells a product that it realizes is short-lived and thus the firm plans to close after 2 more years. The firm expects to have free cash flows of $398,000 next year and $211,000 in Year 2 after incurring the costs of closing. The firm's cost of equity is 14% and its cost of debt is 5.5%. What is the present value of the firm if its debt to value ratio is 40%?

• A) $458,008
• B) $481,707
• C) $500,614
• D)$532,349

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Definitions:

Training

Training involves systematic activities aimed at enhancing the skill set or knowledge base of an individual or group for better performance.

Effectiveness

The ability of something to achieve the intended or expected outcome or result.

Deinstitutionalization

The policy or process of releasing individuals from long-term care facilities, such as psychiatric hospitals, and integrating them back into the community.

Mental Hospitals

Healthcare facilities specializing in the treatment and care of patients with mental illnesses.