Houston Tools has expected earnings before interest and taxes of $189,400, an unlevered cost of capital of 12.87 percent, and a tax rate of 34 percent. The company has $318,000 of debt that carries a coupon rate of 6.2 percent. The debt is selling at par value. What is the value of this firm?

Houston Tools has expected earnings before interest and taxes of $189,400, an unlevered cost of capital of 12.87 percent, and a tax rate of 34 percent. The company has $318,000 of debt that carries a coupon rate of 6.2 percent. The debt is selling at par value. What is the value of this firm?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

6
Houston Tools has expected earnings before interest and taxes of $189,400, an unlevered cost of capital
of 12.87 percent, and a tax rate of 34 percent. The company has $318,000 of debt that carries a coupon
rate of 6.2 percent. The debt is selling at par value. What is the value of this firm?
A $978,758.89
B $1,113,758.89
C
$996,758.89
D.
$1,079,402.05

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