Boutelle Homes Has an All-Equity Value of $648,200,a Cost of Equity

question 31

Multiple Choice

Boutelle Homes has an all-equity value of $648,200,a cost of equity of 11.7 percent,and a tax rate of 35 percent.Assume the firm's capital structure changes to 30 percent debt followed by a lowering of the tax rate to 21 percent.What will be the change in the levered value of the firm due to the reduction in the tax rate?

• A)$16,020
• B)$17,520
• C)$29,169
• D)−$27,224
• E)−$17,520

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