Victoria Dry Goods has expected earnings before interest and taxes of $14,600, an unlevered cost of capital of 15%, and a tax rate of 35%. The company also has $3,500 of debt that carries a 6% coupon. The debt is selling at par value. What is the value of this firm?

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The value of the firm can be calculated using the Modigliani-Miller Proposition I with taxes. The value of the levered firm (V_L) is equal to the value of the unlevered firm (V_U) plus the tax shield on debt (T_C * D), where T_C is the corporate tax rate and D is the value of debt.First, calculate the value of the unlevered firm (V_U) using the formula: V_U = EBIT * (1 - T_C) / r_0, where EBIT is the earnings before interest and taxes, T_C is the tax rate, and r_0 is the unlevered cost of capital.V_U = $14,600 * (1 - 0.35) / 0.15 = $9,490 / 0.15 = $63,267.Next, calculate the tax shield on debt: T_C * D = 0.35 * $3,500 = $1,225.Finally, calculate the value of the levered firm (V_L): V_L = V_U + (T_C * D) = $63,267 + $1,225 = $64,492.

Victoria Dry Goods Has Expected Earnings Before Interest and Taxes