Problem: An unlevered firm has a cost of capital of 14% and earnings before interest and taxes of $150,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $700,000 with a 7% annual coupon. The applicable tax rate is 35%. What is the value of the levered firm?
Choose one answer.
a. $696,429
b. $941,429
c. $1,184,929
d. $1,396,429
e. $907,679