An unlevered ﬁrm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%. A levered ﬁrm with the same assets and operations has $1.25 million in face value debt paying
An 8% annual coupon; the debt sells for par value in the marketplace. What is the value of the
Levered ﬁrm? The tax rate is 34%.
A) $1,250,000
B) $1,375,000
C) $1,666,667
D) $1,800,000
E) $2,625,000

Question

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The Answer of An unlevered ﬁrm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%. A levered ﬁrm with the same assets and operations has $1.25 million in face value debt paying
An 8% annual coupon; the debt sells for par value in the marketplace. What is the value of the
Levered ﬁrm? The tax rate is 34%.
A) $1,250,000
B) $1,375,000
C) $1,666,667
D) $1,800,000
E) $2,625,000

An Unlevered ﬁRm Has an EBIT = $250,000, After-Tax Net