A Local Firm Has Debt Worth $200,000,with a Yield of 9%,and

question 5

Multiple Choice

A local firm has debt worth $200,000,with a yield of 9%,and equity worth $300,000.It is 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 is the value of your firm's tax shield,i.e. ,how much value does the use of debt add?

• A) $92,571
• B) $102,857
• C) $113,143
• D) $124,457
• E) $136,903

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Definitions:

Total Compensation Cost

It encompasses the complete value of all compensatory payments and benefits provided to employees, including salaries, bonuses, and benefits.

Fair Value

Fair value is the estimated market price of an asset or liability, reflecting its current value in an orderly transaction between willing market participants.

Vested Options

Stock options granted to an employee that the employee has the right to exercise, contingent upon fulfilling certain conditions such as employment duration.