The Following Information Has Been Presented to You About the Gibson

question 67

Multiple Choice

The following information has been presented to you about the Gibson Corporation.

The company has no growth opportunities (g = 0) , so the company pays out all of its earnings as dividends (EPS = DPS) .The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%.If the company makes this change, what would be the total market value (in millions) of the firm?

• A) $3, 200
• B) $3, 600
• C) $4, 000
• D) $4, 200
• E) $4, 800

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Definitions:

Frustration of Purpose

A legal defense used in contract law where unforeseen events render the contract's purpose void and impracticable, absolving the parties from their obligations.

Coronation

The ceremony of crowning a sovereign or a sovereign's consort.

Equitable Remedies

Remedies granted by courts in cases where monetary damages are insufficient, often involving actions like injunctions or specific performance.

England

A country that is part of the United Kingdom, known for its rich history, cultural contributions, and legal system.