Firm Value Janetta Corp. has an EBIT rate of $750,000 per year that is expected to continue

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Firm Value Janetta Corp. has an EBIT rate of $750,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 15 percent, and the corporate tax rate is 35 percent. The company also has a perpetual bond issue outstanding with a market value of $1.5 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

$3.2 million. Is the CFO correct? LO.1

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