Problem
Connor Corp. has an EBIT of $535,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 13.2 percent, and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $950,000.
What is the value of the company?
The CFO of the company informs the company president that the value of the company is $3.3 million. Is the CFO correct?