Final answer:
The calculated value of the leveraged firm based on the provided EBIT, unlevered cost of capital, tax rate, and debt is $353,325. However, this value does not match any of the given answer choices, suggesting a possible discrepancy in the question or the need for additional information to align with one of the provided answers.
Step-by-step explanation:
The value of a firm in the context of the Modigliani and Miller theorem, which does not take into account corporate taxes, can be computed using the formula for the value of an unlevered firm plus the tax shield of the debt. In this scenario, L.A. Clothing has expected earnings before interest and taxes (EBIT) of $56,700, an unlevered cost of capital of 16.2 percent, and a tax rate of 35 percent. The debt is $9,500 with a coupon rate of 7 percent, and selling at par value.
The value of the unlevered firm (Vu) can be calculated as EBIT / Unlevered Cost of Capital. For L.A. Clothing, Vu = $56,700 / 0.162 = $350,000. The value of the tax shield (Vt) on the debt is calculated as Debt * Tax Rate. Here, Vt = $9,500 * 0.35 = $3,325. Therefore, the value of the leveraged firm (Vl) is Vu + Vt, which gives us $350,000 + $3,325 = $353,325. When we round this to the nearest whole number, we get $353,000, which is not an option provided in the question. The question then seems to either have a typo, or additional information might be needed to reach one of the provided answers.
Given this, I cannot confidently provide the correct option from the given choices (a. $223,333, b. $222,579, c. $225,476, d. $230,825, e. $224,108), as they do not match the calculation based on the given EBIT, cost of capital, tax rate, and debt information. It appears there may be additional nuances or specific interpretations required based on the context of the question which are not provided here.