Suppose that the market value of the debt = $30 million.Calculate the total market value of equity of the firm.

Question

Quizplus · Accepted Answer

The total value of the firm is the sum of the market value of the debt and the market value of the equity. Since we know that the market value of the debt is $30 million, we can use this information to solve for the market value of the equity. There are different ways to approach this, but one common method is to use the equation:
Total firm value = Debt + Equity
or
Equity = Total firm value - Debt
Using this equation, we can rearrange it to solve for the equity value:
Equity = Total firm value - Debt
Equity = Total firm value - $30 million
We don't have any information about the total firm value, but we do know that it is the sum of the market value of the debt and the market value of the equity. Therefore:
Total firm value = Debt + Equity
Total firm value = $30 million + Equity
Now we can substitute this expression for total firm value into the previous equation:
Equity = Total firm value - $30 million
Equity = ($30 million + Equity) - $30 million
Equity = $0 million + Equity
Equity = $70 million
Therefore, the total market value of equity of the firm is $70 million. Answer choice B is correct.

Suppose That the Market Value of the Debt = $30