Connor Corp has an EBIT of 1055000 per year that is expected

Connor Corp. has an EBIT of $1,055,000 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 08 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 dollar, e.g.. 1.234,567) Value of the company $

Solution

EBIT = $1,055,000
Tax Rate = 35%
Unlevered Cost of Equity = 14%

Unlevered Value of Company = EBIT * (1 - Tax Rate) / Unlevered Cost of Equity
Unlevered Value of Company = $1,055,000 * (1 - 0.35) / 0.14
Unlevered Value of Company = $4,898,214

Value of the Company = Unlevered Value of Company + Tax Rate * Value of Debt
Value of the Company = $4,898,214 + 0.35 * $2,080,000
Value of the Company = $5,626,214