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You are considering two identical firms, one levered and the other unlevered. Both firms have expected...

You are considering two identical firms, one levered and the other unlevered. Both firms have expected EBIT of $21000. The value of the unlevered firm (VU) is $160000. The corporate tax rate is 30%. The cost of debt is 9%, and the ratio of debt to equity is 1 for the levered firm. Use Modigliani and Miller's (1963) propositions in a world without bankruptcy, what is the value of the levered firm?

Select one:

a. $166300

b. $230000

c. $188235

d. $209235

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Answer #1

So correct option is C.

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