Solid rock is an unlevered firm with an ebit of $10 million and an unlevered cost of capital of 12 percent. if the tax rate is 4

Question

2 years ago

10

0 percent, what is the value of the firm?

1 answer:

saveliy_v [14] · Answer 1 · 2023-06-02T11:11:23+03:00

The value of the firm is $50 million

<h3>How to determine the value of the firm?</h3>

The given parameters are:

EBIT = $10 million

Tax Rate, Tc = 40%

Unlevered cost of capital, RU = 12%

The value of the firm is calculated as:

Value = EBIT*(1 - Tc)/Ru

This gives

Value = 10 million *(1 - 40%)/12%

Evaluate the expression

Value = 50 million

Hence, the value of the firm is $50 million