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

question 82

Multiple Choice

Epiphany is an all-equity firm with an estimated market value of $400,000.The firm sells $300,000 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)0.4,0.6
• D)0.5,0.5

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Definitions:

Minerals

Natural inorganic substances occurring in the earth that have a definite chemical composition and physical properties.

Article 2A

pertains to leases of personal property under the Uniform Commercial Code, governing transactions such as rent-to-own agreements.

Personal Property

Movable assets owned by individuals or entities, in contrast to real property like land or buildings.

Consumer Leases

Agreements where a consumer rents or leases goods or services, typically for personal, family, or household purposes.