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9 September, 12:26

Gail's Dance 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% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon rate of 8% to her capital structure. The debt will be sold at par value.

What is the levered value of the equity

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  1. 9 September, 13:44
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    Answer: the leveled value of equity is $2.7m

    Explanation:

    VL=80,000x42+1mx0.34=3.7m

    Ve=3.7m-1m=2.7m
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