Janetta Corp. has an EBIT rate of $1,010,000 per year that is expected to contin

Question

Janetta Corp. has an EBIT rate of $1,010,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 15 percent, and the corporate tax rate is 35 percent. The company also has a perpetual bond issue outstanding with a market value of $1.99 million. What is the value of the company? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Value of the company $

Explanation / Answer

Value of a company= value of unlevered equity + value of Debt

Value of unlevered equity = EBIT(1-t)/ unlevered cost of equity= 1010000 (.65) / 15% = 4376666.67

Value of Debt = 1990000

Value of company = 4376666.67 + 1990000 =636666.67

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