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

question 81

Multiple Choice

Epiphany is an all-equity firm with an estimated market value of $300,000. The firm sells $250,000 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) 0.42, 0.58
• B) 0.50, 0.50
• C) 0.17, 0.83
• D) 0.58, 0.42

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Definitions:

Total Revenue

The total amount of money received by a company for goods sold or services provided during a certain period of time.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a range of prices.

Marginal Revenue Curve

A graphical representation showing how marginal revenue varies as the quantity of goods sold changes.

Marginal Revenue

The extra revenue received from the sale of an additional unit of a product or service.