Question

The Studio is currently an all-equity firm that has 68,000 shares of stock outstanding with a market price of $36.80 a share. The current cost of equity is 11.7 percent, and the tax rate is 35 percent. The firm is considering adding $750,000 of debt with a coupon rate of 5.8 percent to its capital structure. The debt will be sold at par value. The value of the unleveraged firm is __________, and the value of the levered firm is __________________.

NOTE: Value of leveraged Firm = Value of leveraged equity + Value of Debt

$2,764,900; $2,502,400

$2,502,400; $3,514,900

$2,502,400; $2,502,400

$2,764,900; $3,514,900

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

ACCRODING TO FILL IN GAPS : FIRST ANSWER SHOULD BE UNLEVERED FIRM AND SECOND ANSWER SHOULD BE LEVERED FIRM

BUT ANSWER OPTIONS HAVE FIRST ANSWER : LEVERED FIRM AND SECOND ANSWER : UNLEVERED FIRM.

PLEASE CHECK ACCORDINGLY. THANK YOU