Kline Construction Is an All-Equity Firm That Has Projected Perpetual

question 17

Multiple Choice

Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $879 000.The current cost of equity is 18.3 per cent and the tax rate is 34 per cent.The company is in the process of issuing $6.2 million of 8.5 per cent annual coupon bonds at par.What is the levered value of the firm?

• A)$5 278 164
• B)$6 422 225
• C)$7 385 695
• D)$6 713 185
• E)$5 541 085

---

Definitions:

Investment Portion

The segment of an investment portfolio allocated to various investment vehicles according to a specific strategy.

Death Benefit

A payment made to the beneficiaries of an insurance policy or pension plan when the insured or participant dies.

Insurance Portion

The portion of a payment specifically allocated to cover insurance costs.

Full Retirement Benefit

Full Retirement Benefit refers to the total amount of pension or social security payments a person is eligible to receive upon reaching the designated retirement age.