Firm is considering two different capital structures

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1. A firm is considering two different capital structures. The first option is an all-equity firm with 40,000 shares of stock. The second option is 28,000 shares of stock plus some debt. Ignoring taxes, the break-even level of earnings before interest and taxes between these two options is $52,000. How much money is the firm considering borrowing if the interest rate is 9 percent?

$175,000

$173,333

$208,333

$216,667

$225,000

2. Taunton's is an all-equity firm that has 160,000 shares of stock outstanding. Neal, the financial vice president, is considering borrowing $275,000 at 7.45 percent interest to repurchase 25,000 shares. Ignoring taxes, what is the current value of the firm?

$1,260,000

$1,800,000

$1,485,000

$1,520,000

$1,760,000

Reference no: EM131341855

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