Which of the following statements is correct for a firm that is 55% debt-financed and the value of equity equals $58 million?

Question

Quizplus · Accepted Answer

If the value of equity is $58 million and the firm is 55% debt-financed, that means total debt is 100% - 55% = 45% of the total value of the company. 
Thus, the value of debt can be calculated as:
Value of debt = 45% of total value of the firm = 0.45 x Total value of the firm 
Value of debt = 0.45 x (Equity + Debt)
$58 million (equity) = 0.55 x Total value of the firm 
Total value of the firm = $58 million / 0.55 = $105.45 million 
Value of debt = 0.45 x $105.45 million = $47.45 million 
Therefore, the debt is valued at approximately $47.45 million. 
The value of equity plus the value of debt equals the total value of the firm: 
Total value of the firm = $47.45 million + $58 million = $105.45 million 
Therefore, the correct statement is that the firm is valued at approximately $129 million (Equity + Debt = Total value of the firm).

Which of the Following Statements Is Correct for a Firm