Winston's Super Market is currently an all equity ﬁrm that has 120,000 shares of stock outstanding at a market price of $34.50 a share. The current cost of equity is 11% and the tax rate is 35%.
Winston's is considering adding $1.6 million of debt with a coupon rate of 7.5% to the capital
Structure. The debt will be sold at par value. What is the levered value of the equity?
A) $2.8 million
B) $3.1 million
C) $3.9 million
D) $4.3 million
E) $4.7 million

Question

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The Answer of Winston's Super Market is currently an all equity ﬁrm that has 120,000 shares of stock outstanding at a market price of $34.50 a share. The current cost of equity is 11% and the tax rate is 35%.
Winston's is considering adding $1.6 million of debt with a coupon rate of 7.5% to the capital
Structure. The debt will be sold at par value. What is the levered value of the equity?
A) $2.8 million
B) $3.1 million
C) $3.9 million
D) $4.3 million
E) $4.7 million

Winston's Super Market Is Currently an All Equity ﬁRm That