Gail's Dance Studio Is Currently an All Equity Firm That

question 35

Multiple Choice

Gail's Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon rate of 8% to her capital structure. The debt will be sold at par value. What is the levered value of the equity?

• A) $2.4 million
• B) $2.7 million
• C) $3.3 million
• D) $3.7 million
• E) $3.9 million

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Definitions:

Executive Committee

A group of high-ranking officials within an organization or board responsible for decision-making and policy implementation.

Union Democracy

The practice and principle of democratic governance within labor unions, including elections for leadership and decision-making by membership.

Change To Win

A federation of American labor unions that split from the AFL-CIO in 2005 to focus on union revitalization and organizing.

National Union

A labor union organization that represents the interests of workers across an entire country, often consisting of many local branches or sectors.