The Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12 percent and the tax rate is 34 percent. The firm is considering adding $1.25 million of debt with a coupon rate of 8 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity?

Multiple Choice

• $5,035,000

• $4,015,000

• $3,785,000

• $2,535,000

• $3,015,000