Once Bitten Corp uses no debt The weighted average cost of c

Once Bitten Corp. uses no debt. The weighted average cost of capital is 6 percent. If the current market value of the equity is $10 million and there are no taxes, what is EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

Solution

Since no debt hanec Cost of Caital = Cost of Equity
Market Value of Equity = EBIT/Cost of Equity
EBIT = Market value of Equity * Cost of Equity = 10 * 6% = 0.6 Million or 600,000

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