Answer:
$2,163,171
Explanation:
We use the MM model with taxes to evaluate a firm with financial leverage
D x t = 1,250,000 x 0.36 = 450,000
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<u>Now we calcualte the value of the firm without financial leverage:</u>
The unlevered firm will produce 439,000
It pays taxes for 36% and no interest expense so his net income will be
439,000 x ( 1 - 0.36) = 280,960
then we calculate using the cost of equity the value of the firm usng the perpetuity formula:
280,960/.164 = 1,713,170.73 = 1,713,171
Now we add the debt tax shield to calculate the firm value with leverage
1,713,171 + 450,000 = 2,163,171