A firm has an EBIT of $210,000 and a tax rate of 30 percent

Finance Dec 24, 2020

A firm has an EBIT of $210,000 and a tax rate of 30 percent. The firm has a WACC of 6.5%. According to the traditional approach to capital structure, the value of the firm is approximately

Group of answer choices

1.88 million

2.64 million

2.26 million

3.77 million

Expert Solution

Value of unlevered firm = EBIT*(1-tax rate)/unlevered cost of equity

=210000*(1-0.3)/0.065

=2261538.46

=2.26 million

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