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Question
The market value of Firm L's debt is $200,000 and its yield is 9%. The firm's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Using the compressed adjusted present value model, what would Firm L's total value be if it had no debt?a. $358,421
b. $377,286
c. $397,143
d. $417,000
e. $437,850
Answer
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