CT Stores Has Debt with a Book Value of $325,000

question 61

Multiple Choice

CT Stores has debt with a book value of $325,000 and a market value of $319,000.The firm's equity has a book value of $526,000 and a market value of $684,000.The tax rate is 21 percent and the cost of capital is 11.2 percent.What is the market value of this firm based on MM Proposition I without taxes?

• A)$923,250
• B)$1,003,000
• C)$984,300
• D)$851,000
• E)$769,750

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Definitions:

Loan

A sum of money that is borrowed, typically from a financial institution, which is expected to be paid back with interest.

Compounded Semi-annually

Interest calculation where interest earned over six months is added to the principal, affecting future interest computations.

Monthly Payments

Regular payments made each month, often towards the repayment of a loan or mortgage.

Loan

Money that is borrowed from a bank, financial institution, or individual under the condition that it will be paid back with interest.