Janetta Corp. has EBIT of $850,000 per year that is expected to continue in perpetuity. The unlevered

Question:

Janetta Corp. has EBIT of $850,000 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 $1.9 million.

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 $4.3 million. Is the CFO correct?

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...