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Neporo4naja [7]
3 years ago
8

Change Corporation expects an EBIT of $61,000 every year forever. The company currently has no debt, and its cost of equity is 1

2 percent. The corporate tax rate is 25 percent. a. What is the current value of the company?
Business
1 answer:
ipn [44]3 years ago
6 0

Answer:

The correct answer is $381,250.

Explanation:

According to the scenario. the given data are as follows:

EBIT = $61,000

Cost of equity = 12%

Tax rate = 25%

So, we can calculate the current value of company by using following formula:

Current value = EBIT × ( 1 - Tax rate ) / Cost of Equity

by putting the following value:

= $61,000 × (1 - 0.25) / 0.12

= $381,250

Hence the current value of the company is $381,250.

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