Question
Jeter Inc. is currently an all-equity firm. The company is expected to generate an EBIT (Earnings Before Interest and Taxes) of 150 million dollars forever
Jeter Inc. is currently an all-equity firm. The company is expected to generate an EBIT (Earnings Before Interest and Taxes) of 150 million dollars forever (starting one year from now). This is given in the following table, together with the optimistic and pessimistic forecasts which have equal probabilities.
| State | High | Expected | Low |
| EBIT | 250 | 150 | 50 |
Assume the firm has no depreciation, no capital expenditures and no changes in net working capital. The corporate tax rate is 20%. The company has 80 million shares outstanding and a share price of $10 per share.
a. What is the unlevered cost of capital for ABC?
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Entrepreneurship
Authors: Andrew Zacharakis, William D Bygrave
5th Edition
9781119563099
