A Firm Has an Operating Profit of $300,000, Interest of $35,000

question 79

Multiple Choice

A firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm's target capital structure is set at a mix of 40 percent debt and 60 percent equity. Assuming this as the optimum capital structure, the value of the firm is ________.

• A) $1.4 million
• B) $2.2 million
• C) $1.8 million
• D) $6.0 million

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Definitions:

MC, AVC, ATC Curves

Graphs representing marginal cost, average variable cost, and average total cost, respectively, as functions of quantity produced.

Additive Manufacturing

A process of making three-dimensional solid objects from a digital file, commonly known as 3D printing, by layering materials.

Reducing Costs

The practice of lowering expenses associated with business operations to increase efficiency and profitability.

3-D Printers

Machines that create three-dimensional objects by depositing materials layer by layer according to digital models.