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The unlevered cost of capital is: Select one: a. the cost of capital for a firm with no debt in its capital structure. b. the
The unlevered cost of capital is: Select one: a. the cost of capital for a firm with no debt in its capital structure. b. the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure. c. the cost of capital for a firm with no equity in its capital structure. d. the interest tax shield times pretax net income. An unlevered firm has a cost of capital of 16 percent and earnings before interest and taxes of $225,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $850,000 with an 8 percent annual coupon. The applicable tax rate is 34 percent. What is the value of the levered firm? Select one: a. $1,217,125 b. $1,178,125 c. $1,110,125 d. $928,125
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