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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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    Solution Preview

    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