Problem:
The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percent. The estimated earnings before interest and taxes are $239,000 annually forever. Currently, the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest. The tax rate is 30 percent.
Required:
Question: What is the value of the unlevered firm?
- $ 849,207
- $ 853,571
- $ 856,411
- $ 919,307
- $ 926,667
Note: Please show basic calculation