27 Jan

A firm is financed with $350,000 of equity and $650,000

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Question: A firm is financed with $350,000 of equity and $65…

A firm is financed with $350,000 of equity and $650,000 of long-term debt, as of the beginning of the current fiscal year. During the same fiscal year, the firm paid $65,000 in interest expense and earned $300,000 in net income. If the firm has an average tax rate of 25% and a 20% cost of capital, then what is the economic valued added for the current fiscal year?

 

  1. a) $51,250
  2. b) $148,750
  3. c) $200,000
  4. d) $218,750
  5. e) $348,750

 

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