Answer:
$751,562.50 and $837,203.125
Explanation:
The formula to compute the value of the firm under the MM proposition approach is shown below:
In first case
= {EBIT × ( 1 - tax rate)} ÷ WACC
= {$185,000 × ( 1 - 0.35)} ÷ 16%
= $120,250 ÷ 16%
= $751,562.50
Since no debt is there which means the firm is unlevered firm and computation is done accordingly.
All other information which is given is not relevant. Hence, ignored it
In second case
= {EBT× ( 1 - tax rate)} ÷ WACC
= {$172,850 × ( 1 - 0.35)} ÷ 16%
= $112,352.50 ÷ 16%
= $702,203.125
EBT = $185,000 - $135,000 × 9%
= $185,000 - $12,150
= $172,850
So, the value of firm would be
= $702,203.125 + $135,000
= $837,203.125
