The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percen

Question

The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percent. The estimated earnings before interest and taxes are $239,000 annually forever. Currently, the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest. The tax rate is 30 percent. What is the value of the unlevered firm? Answer $849,207 $853,571 $856,411 $919,307 $926,667 The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percent. The estimated earnings before interest and taxes are $239,000 annually forever. Currently, the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest. The tax rate is 30 percent. What is the value of the unlevered firm? $849,207 $853,571 $856,411 $919,307 $926,667 $849,207 $853,571 $856,411 $919,307 $926,667

Explanation / Answer

value of the unlevered firm = (239000-30%*239000)/19.60% = $853,571

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