The Market Value of Firm L's Debt Is $200,000 and Its

question 23

Multiple Choice

The market value of Firm L's debt is $200,000 and its yield is 9%.The firm's equity has a market value of $300,000,its earnings are growing at a 5% rate,and its tax rate is 40%.A similar firm with no debt has a cost of equity of 12%.Using the compressed adjusted present value model,what would Firm L's total value be if it had no debt?

• A) $358,421
• B) $377,286
• C) $397,143
• D) $417,000
• E) $437,850

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Definitions:

Endocrine

Pertaining to glands which secrete hormones or other products directly into the blood.

Glomerulus

A network of capillaries located at the beginning of a nephron in the kidney, where blood filtration takes place.

Collecting Duct

Duct within the kidney that receives fluid from several nephrons; the reabsorption of water occurs here.

Proximal Convoluted Tubule

Portion of a nephron following the glomerular capsule where tubular reabsorption of filtrate occurs.