Interior Design Group is an all equity firm that has 40,000 shares of stock outstanding. The company has decided to borrow $1 million to buy out the shares of a deceased stockholder who holds 2,500 shares.
What is the total value of this firm if you ignore taxes?
A. $15.5 million
B. $15.6 million
C. $16.0 million
D. $16.8 million
E. $17.2 million

The total value of this firm if you ignore taxes is $16 million.

Explanation:

Considering that the company has decided to borrow $1 million to buy out the shares of a deceased stockholder who holds 2,500 shares, hence to calculate the total value of the firm we have to first make the following calculation:

$1,000,000÷2,500= 400

Hence, Total value of the firm= 400×40,000 shares of stock outstanding

                                                 = $16 million is the total value of this firm if you ignore taxes.

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