Mix represents the optimum capital structure for the firm

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Reference no: EM131558805

The firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40%. The firm has an after-tax cost of debt of 5% and a cost of equity of 15%. The firm's target capital structure is a mix of 40% debt & 60% equity. Assuming this mix represents the optimum capital structure for the firm, the value of the firm is

a) $1.6 mil

b) $16.4 mil

c)$2.7 mil

d) 1.8 mil

Reference no: EM131558805

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