The optimum capital structure and value of the firm

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A firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40 percent. The firm has an after tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm's target capital structure is set at a mix of 40 percent debt and 60 percent equity. Assuming this as the optimum capital structure, the value of the firm is

a 1.4 mil

b 6 mil

c 2.2 mil

d 1.8mil

Reference no: EM131083056

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