Question

Gunnar Corp. uses no debt. The weighted average cost of capital is 8.5 percent. The current market value of the equity is $43 million and the corporate tax rate is 21 percent.

  

What is the EBIT? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Answer 1

Calculate the EBIT as follows:

EBIT = (Market value * Cost of capital) / (1- Tax rate)

EBIT = ($43,000,000*8.5%) / (1-21%)

EBIT = $3,655,000/79%

EBIT = $4,626,582.28.