Consider the following equation: E + D = U = A
The U in this equation represents:
A)the value of the firm's equity.
B)the market value of the firm's assets.
C)the value of the firm's unlevered equity.
D)the value of the firm's debt.

Question

Quizplus · Accepted Answer

U represents the value of the firm's unlevered equity, which is the equity value without any debt financing. E represents the firm's equity and D represents the firm's debt. Therefore, E + D = U represents the relationship between the firm's equity, debt, and the unlevered equity value. Option A and D do not fit the equation. Option B is close but not the same as U since it includes the market value of all assets, not just the equity value.

Consider the Following Equation: E + D = U =