An Unlevered Firm Currently Has a Value of $40 Million

question 33

Multiple Choice

An unlevered firm currently has a value of $40 million.The firm has a tax rate of 40%.The firm wishes to replace $10 million of its equity with $10 million of permanent debt.What is the value of the levered firm if it goes ahead with this plan?

• A)$42 million
• B)$50 million
• C)$40 million
• D)$44 million
• E)$45 million

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Definitions:

Andropause

a term referring to age-related changes in male hormone levels, particularly a decrease in testosterone, sometimes called male menopause.

Menopause

A natural biological process marking the end of a woman's reproductive years, characterized by the cessation of menstrual periods.

BMI

Body Mass Index, a measure of body fat based on an individual's weight in relation to their height, used to assess overweight and obesity levels.

Obese

A medical condition characterized by excess body fat accumulated to the extent that it may have a negative effect on health, leading to reduced life expectancy and/or increased health problems.