Hanover Tech Is Currently an All-Equity Company That Has 145,000

Hanover Tech is currently an all-equity company that has 145,000 shares of stock outstanding with a market price of $22 a share. The current cost of equity is 13.9 percent and the tax rate is 21 percent. The company is considering adding $1.5 million of debt with a coupon rate of 7.5 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity?

A) $2.209 million
B) $2.005 million
C) $2.312 million
D) $2.012 million
E) $2.108 million

Correct Answer:

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