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Our firm survives for the next 3 years and then it is dissolved (no residual value). Each of these 3 years, it earns before interest
Our firm survives for the next 3 years and then it is dissolved (no residual value). Each of these 3 years, it earns before interest and taxes $420,000 (i.e., these are the only payoffs that shareholders will ever receive) and has already depreciated its fixed assets. It draws 25% of its financing from 3-year bonds with face value $1,000 (each) that pay an annual coupon of $50 and sell at par. The firm has a beta of 1.2 and faces a corporate tax rate of 20%. The risk free rate is 4% and the expected market return is 14%. What is the value of the firm? a. $3,239,769 b. $934,074 C. $747,259 d. $2,535,849 e. $835,582 f. $3,169,811 g. $1,044,478 h. $789,992 i. $793,347 j. $987,490 k. $2,584,615 l. $991,684 m. $3,360,000 n. $4,200,000
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