Gail's Dance Studio is currently an all equity firm that has 80,000 shares 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
Correct Answer:
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