A New Business Will Generate a One-Time Cash Flow of $25,000

question 48

Multiple Choice

A new business will generate a one-time cash flow of $25,000 after one year.The business will be financed with 20% equity and 80% debt.If the firm's unlevered equity cost of capital is 12%,what is the levered value of the firm with perfect capital markets?

• A)$19,882
• B)$22,321
• C)$22,000
• D)$28,000
• E)$23,000

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Definitions:

Collection Efforts

Activities undertaken by a business or organization to pursue and receive payments owed by customers or clients.

Reversing Entries

Journal entries usually made at the beginning of an accounting period to reverse or cancel out adjusting entries from the end of the previous period.

Allowance Method

An accounting technique used to anticipate and adjust for potential future losses from uncollectible accounts receivable.

Uncollectible Accounts

Accounts receivable that are recognized as not being collectible, leading to a write-off as a bad debt expense.