Problem:
An unlevered firm has a cost of capital of 14% and earnings before interest and taxes of $150,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $700,000 with a 7% annual coupon. The applicable tax rate is 35%.
Required:
Question: What is the value of the levered firm? Explain comprehensively and provide all workings and methods.