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

question 70

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. According to the traditional approach to capital structure, the value of the firm is

• A) $1.4 million.
• B) $2.0 million.
• C) $2.7 million.
• D) $6.0 million.

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Definitions:

Aggregated

Combined or collected into a summary form from separate parts.

Predicting Future Behaviors

The process of using current and past behaviors or trends to forecast future actions or patterns.

Specific Behaviors

Actions or reactions of an individual in response to external or internal stimuli, which can be observed and measured.

Aggregated Behaviors

The sum or collection of individual actions or responses observed over a period of time, providing insights into overall patterns or trends.