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Referring to table below, calculate the market value of firm L (without a corporate income...

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Accounting

Referring to table below, calculate the market value of firm L (without a corporate income tax) if the equity amount in its capital structure decreases to $10,000 and the debt amount increases to $10,000. At this capital structure, the cost of equity is 21 percent. Round your answer to the nearest dollar.

Firm U Firm L
Net operating income (EBIT) $ 3,000 $ 3,000
Less: Interest payments to debt holders, I - 675
Income available to stockholders (dividends), D $ 3,000 $ 2,325
Total income available to security holders, I + D $ 3,000 $ 3,000
Required rate of return on debt, kd - 9 %
Market value of debt, B = I/kd - $ 7,500
Required rate of return on equity,ke 15 % 18.6 %
Market value of equity, E = D/ke $ 20,000 $ 12,500
Market value of firm, E + B $ 20,000 $ 20,000

$

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