Connor Corp has an EBIT of $1,055,000 per year that is expected to continue in perpetuity

Finance Dec 02, 2020

Connor Corp has an EBIT of $1,055,000 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 23 percent. The company also has a perpetual bond issue outstanding with a market value of $2.08 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 the nearest whole dollar, e.g., 1,234,567.) Value of the company

Expert Solution

The value of the company is computed as shown below:

= [ EBIT x (1 - tax rate) / unlevered cost of equity ] + Amount of debt x tax rate

= ($ 1,055,000 x 0.77) / 0.14 + $ 2,080,000 x 0.23

= $ 5,802,500 + $ 478,400

= $ 6,280,900

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