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Value of the levered firm

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An unlevered firm has a cost of capital of 14% and earnings before interest and taxes of $150,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $700,000 with a 7% annual coupon. The applicable tax rate is 35%. What is the value of the levered firm?
Choose one answer.

a. $696,429
b. $941,429
c. $1,184,929
d. $1,396,429
e. $907,679

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Value of levered firm = Value of unlevered firm + Tax shield due to ...

Solution Summary

The solution explains how to calculate the value of the levered firm