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

question 83

Multiple Choice

Epiphany is an all-equity firm with an estimated market value of $400,000. The firm sells $225,000 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) 0.28, 0.72
• B) 0.44, 0.56
• C) 0.39, 0.61
• D) 0.56, 0.44

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Definitions:

Manager

A person in charge of managing or overseeing either a portion or the entirety of a business or comparable entity.

Ratio

A mathematical relationship that compares two numbers or quantities, indicating how much of one value exists per unit of the other.

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Emotional states or feelings that are desirable and perceived as beneficial, such as happiness, joy, or love.

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A feeling of great pleasure and happiness.