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The Following Information Has Been Presented to You About the Gibson

Question 67

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The following information has been presented to you about the Gibson Corporation.
The following information has been presented to you about the Gibson Corporation. The company has no growth opportunities (g = 0) , so the company pays out all of its earnings as dividends (EPS = DPS) .The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%.If the company makes this change, what would be the total market value (in millions) of the firm? A) $3, 200 B) $3, 600 C) $4, 000 D) $4, 200 E) $4, 800
The company has no growth opportunities (g = 0) , so the company pays out all of its earnings as dividends (EPS = DPS) .The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%.If the company makes this change, what would be the total market value (in millions) of the firm?


A) $3, 200
B) $3, 600
C) $4, 000
D) $4, 200
E) $4, 800

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