ZuoTi.Pro
Question

Ch15-1.) Firm Value Connor Corp. has an EBIT of $460,000 per year that is expected to...

Ch15-1.) Firm Value Connor Corp. has an EBIT of $460,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 13.2 percent, and the corporate tax rate is 35 percent. The company also has a perpetual bond issue outstanding with a market value of $950,000. a. What is the value of the company? b. The CFO of the company informs the company president that the value of the company is $2.4 million. Is the CFO correct?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

a. The value of the company is computed by using the below formula:

= EBIT ( 1 - tax rate ) / cost of equity + tax rate x market value of bond outstanding

= $ 460,000 ( 1 - 0.35 ) / 0.132 + 0.35 x $ 950,000

= $ 2,597,651.515 or $ 2.60 Million Approximately

b. No the CFO is not correct since the value of the company as determined by him differs from the value that we have computed in part a.

Feel free to ask in case of any query relating to this question

0 0
Add a comment
Know the answer?
Add Answer to:
Ch15-1.) Firm Value Connor Corp. has an EBIT of $460,000 per year that is expected to...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Connor Corp. has an EBIT of $970,000 per year that is expected to continue in perpetuity....

    Connor Corp. has an EBIT of $970,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 12 percent, and the corporate tax rate is 35 percent. The company also has a perpetual bond issue outstanding with a market value of $1.91 million. What is the value of the company? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole...

  • Connor Corp. has an EBIT of $1,030,000 per year that is expected to continue in perpetuity....

    Connor Corp. has an EBIT of $1,030,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 14 percent, and the corporate tax rate is 35 percent. The company also has a perpetual bond issue outstanding with a market value of $2.03 million. What is the value of the company? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole...

  • Morrow Corp. has an EBIT of $945,000 per year that is expected to continue in perpetuity....

    Morrow Corp. has an EBIT of $945,000 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 22 percent. The company also has a perpetual bond issue outstanding with a market value of $2.65 million. What is the value of the company? (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)...

  • Morrow Corp. has an EBIT of $795,000 per year that is expected to continue in perpetuity....

    Morrow Corp. has an EBIT of $795,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 12 percent and the corporate tax rate is 22 percent. The company also has a perpetual bond issue outstanding with a market value of $1.9 million. What is the value of the company? (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)...

  • Morrow Corp. has an EBIT of $865,000 per year that is expected to continue in perpetuity....

    Morrow Corp. has an EBIT of $865,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 13 percent and the corporate tax rate is 24 percent. The company also has a perpetual bond issue outstanding with a market value of $2.25 million. What is the value of the company? (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)...

  • Morrow Corp. has an EBIT of $815.000 per year that is expected to continue in perpetuity....

    Morrow Corp. has an EBIT of $815.000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 14 percent and the corporate tax rate is 24 percent. The company also has a perpetual bond Issue outstanding with a market value of $2 million. 0.5 points What is the value of the company? (Do not round Intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places....

  • Morrow Corp. has an EBIT of $785,000 per year that is expected to continue in perpetuity. The unlevered cost of equity f...

    Morrow Corp. has an EBIT of $785,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 11 percent and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $1.85 million. What is the value of the company? (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)...

  • Vader Corp. is a firm that generates a perpetual EBIT of $50,000 per year. The firm...

    Vader Corp. is a firm that generates a perpetual EBIT of $50,000 per year. The firm currently has no debt and has 50,000 shares outstanding. The cost of capital is 10%. The firm is thinking of issuing $200,000 in debt and using the proceeds to repurchase equity. The firm could borrow the funds at 8%. If there are no corporate taxes and M&M Proposition I holds, what would be the market value of Vader Corp. if it issues the debt...

  • Tool Manufacturing has an expected EBIT of $83,000 in perpetuity and a tax rate of 25...

    Tool Manufacturing has an expected EBIT of $83,000 in perpetuity and a tax rate of 25 percent. The company has $145,000 in outstanding debt at an interest rate of 6.5 percent and its unlevered cost of capital is 14 percent.    What is the value of the company according to MM Proposition I with taxes?

  • 8. (Chapter 16) Company Z has perpetual annual EBIT equal to $70 million; a corporate tax...

    8. (Chapter 16) Company Z has perpetual annual EBIT equal to $70 million; a corporate tax rate of 21 percent, outstanding debt with market value $100 million; cost of debt equal to 6 percent; and unlevered cost of capital equal to 15 percent. (Assume the world of MM with taxes.) a. What is the total value of the equity in this firm? b. What is the required return on the (levered) equity? c. What is the WACC?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT