Answer:
Value of the firm = 25000
Step-by-step explanation:
Use the below formula to find the value of firm.
Degree of Financial Leverage = EBIT / ( EBIT - Interest)
Degree of Financial Leverage = 0.25
0.25={200/ {200-Interests}
Interests amount = - 600
Interest amount = debt × Cost of Debts
Debt amount = Interest amount / Cost of Debt
Debt amount = - 600 / 0.12.
Debt amount = -5000
Now find the debt equity ratio:
Debt-equity ratio = debt / equity
Given Debt amount = 5000
0.25= 5000 / Equity
Equity =5 000 /0.25
The value of Equity = 20,000
Now, the value of the firm = Equity amount + Debt amount
The value of the firm = 20000 + 5000
The value of the firm = 25000