An unlevered company has a cost of capital of 14.6 percent and earnings before interest and taxes of $240,090. A levered company with the same operations and assets has a face value of debt of $85,000 with a coupon rate of 7.5 percent that sells at par. The applicable tax rate is 22 percent. What is the value of the levered company?
A) $1,085,338
B) $1,398,257
C) $1,402,509
D) $1,301,373
E) $1,001,010

Question

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The Answer of An unlevered company has a cost of capital of 14.6 percent and earnings before interest and taxes of $240,090. A levered company with the same operations and assets has a face value of debt of $85,000 with a coupon rate of 7.5 percent that sells at par. The applicable tax rate is 22 percent. What is the value of the levered company?
A) $1,085,338
B) $1,398,257
C) $1,402,509
D) $1,301,373
E) $1,001,010

An Unlevered Company Has a Cost of Capital of 14