Question

The book worm is an unlevered firm with an aftertax net income of $237,600. the unlevered cost of capital is 15.6 percent and the tax rate is 34 percent. what is the value of this firm?

O $1,339,007.68
O $1,270,867.03
O $1,378,414.14
O $1,447,489.14
O $1,523,076.92

Answer 1

The Book Worm, an unlevered firm with an after-tax net income of $237,600 and an unlevered cost of capital of 15.6%, is valued at $1,523,076.92.

Step-by-step explanation:

To calculate the value of the unlevered firm, The Book Worm, we apply the formula for valuing an unlevered firm, which is the after-tax net income divided by the unlevered cost of capital. Given that the after-tax net income is $237,600 and the unlevered cost of capital is 15.6%, the valuation of the firm would be:

Value of the firm = After-tax net income / Unlevered cost of capital
Value of the firm = $237,600 / 0.156

This calculation gives us a firm value of $1,523,076.92, which would be the correct answer from the provided options.