Refer to Exhibit 15

Refer to Exhibit 15.1.PP is considering changing its capital structure to one with 30% debt and 70% equity, based on market values.The debt would have an interest rate of 8%.The new funds would be used to repurchase stock.It is estimated that the increase in risk resulting from the added leverage would cause the required rate of return on equity to rise to 12%.If this plan were carried out, what would be PP's new value of operations?

A) $484, 359
B) $487, 805
C) $521, 173
D) $560, 748
E) $584, 653

Correct Answer:

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