QUESTION $12$

General Chemicals Inc. is a chemical firm that reported earnings before interest and taxes of $$50$

million on revenues of $$1$ billion in the most recent year.

The Market value of the firm is $$500$ million and the firm faces a tax rate of $50\%.$

The firm is unlevered and has a cost of equity of $8\%.($The riskfree rate is $5\%$ and the market risk

premium is $4\%.)$

If the firm adds debt in the market value of $$200$ Million, what will be the market value of equity for the now levered firm.

$175$ Million

$700$ Million

$600$ million

$300$ Million