Marcos &Amp; Sons Has No Debt

question 8

Multiple Choice

Marcos & Sons has no debt.Its current total value is $13 million.What will the company's value be if it sells $5 million in debt and has a tax rate of 35 percent? Assume all debt proceeds are used to repurchase equity.

• A)$16.25 million
• B)$18.00 million
• C)$11.25 million
• D)$13.00 million
• E)$14.75 million

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Definitions:

Efficient Frontier

In finance and operations, a concept that identifies the optimal portfolio of investments or resources that offers the highest expected return for a given level of risk.

Bullwhip Effect

A phenomenon in supply chains where small fluctuations in demand at the retail level cause progressively larger fluctuations in demand at the wholesaler, manufacturer, and raw material supplier levels.

Behavioral Obstacles

Psychological factors or habits that impede individuals or organizations from making rational or optimal decisions.

Bullwhip Effect

A phenomenon in supply chains where small variations in demand at the consumer level cause increasingly larger variations in demand upstream.