Uptown Interior Designs is an all-equity firm that has 40,000 shares of stock outstanding.The company has decided to borrow $74,000 to buy out the 2,100 shares of a deceased stockholder.What is the total value of this firm if you ignore taxes?
A)$2,008,157
B)$1,388,056
C)$1,409,524
D)$3,885,000
E)$2,630,620

Question

Quizplus · Accepted Answer

To find the total value of the firm, we need to calculate the current value of equity and add the debt to it.

The current value of equity is 40,000 shares x current stock price, which is not given in the problem. Therefore, we cannot calculate the exact value of equity.

However, we can calculate the total market value of equity before the buyout. Before the buyout, there were 40,000 shares outstanding. If we assume that the current value of each share is $35, then the total market value of equity is:

40,000 shares x $35 per share = $1,400,000

Now, we add the debt to the market value of equity:

$1,400,000 + $74,000 = $1,474,000

Therefore, the total value of the firm is $1,474,000, which is closest to answer choice C: $1,409,524.

Uptown Interior Designs Is an All-Equity Firm That Has 40,000