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

question 31

Multiple Choice

Epiphany is an all-equity firm with an estimated market value of $500,000.The firm sells $200,000 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)0.6,0.4

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Definitions:

Scaffolding

Pedagogical technique that provides supportive structures and tools to aid learning, allowing students to perform tasks they cannot do independently.

Model Airplane

A scaled-down replica of an aircraft, used for display, hobby building, or flying competitions.

Do-it-yourself

A term referring to the practice of building, repairing, or making things oneself, rather than hiring a professional or buying ready-made products.

Static Reasoning

A way of thinking in which individuals assume that the world is unchanging and what is true now will always be true.