Epiphany Is an All-Equity Firm with an Estimated Market Value

question 71

Multiple Choice

Epiphany is an all-equity firm with an estimated market value of $300,000.The firm sells $100,000 of debt and uses the proceeds to purchase outstanding equity.Compute the weight in equity and the weight in debt after the proposed financing and repurchase of equity.

• A)0.2,0.8
• B)0.25,0.75
• C)0.67,0.33
• D)0.5,0.5

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Definitions:

Savonarola

Girolamo Savonarola was a Dominican friar and preacher in Renaissance Florence who is known for his prophecies of civic glory, the destruction of secular art and culture, and his call for Christian renewal.

Camera Degli Sposi

A room in the Ducal Palace of Mantua, Italy, celebrated for its frescoes by Andrea Mantegna that include trompe l'oeil effects and courtly scenes.

Mantegna

Italian Renaissance artist Andrea Mantegna, celebrated for his mastery in perspective and detailed frescoes that vividly depict historical and religious scenes.

Linear Perspective

A technique in art, specifically drawing and painting, that creates the illusion of depth and volume on a flat surface by depicting objects smaller as their distance from the observer increases.