The Studio is currently an all-equity firm that has 68,000 shares of stock outstanding with a market price of $36.80 a share.The current cost of equity is 11.7 percent,and the tax rate is 35 percent.The firm is considering adding $750,000 of debt with a coupon rate of 5.8 percent to its capital structure.The debt will be sold at par value.What is the levered value of the equity?
A)$2,014,900
B)$3,035,500
C)$1,785,000
D)$2,005,200
E)$1,806,400

Question

Quizplus · Accepted Answer

V_L = (68,000 × $36.80)+ (0.35 × $750,000)= $2,764,900 V_E = $2,764,900 - $750,000 = $2,014,900

The Studio Is Currently an All-Equity Firm That Has 68,000