Question
Morrow Corp. has an EBIT of $835,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is
| Morrow Corp. has an EBIT of $835,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 16 percent and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $2.1 million. |
| What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) |
| The CFO of the company informs the company president that the value of the company is $3.8 million. Is the CFO correct? |
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
