Question

Once Bitten Corp. uses no debt. The weighted average cost of capital is 7.6 percent. The...

Once Bitten Corp. uses no debt. The weighted average cost of capital is 7.6 percent. The current market value of the equity is $14 million and the corporate tax rate is 35 percent. What is EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)

Homework Answers

Answer #1

Here the Weighted Average Cost of Capital (WACC) = 7.6%

WACC= (Ke X We) + (Kdt X Wd)

here, Ke= Cost of equity,

We= Weight of equity

Kdt= Cost of debt after tax

Wd= Weight of debt

Here, Bitten Corp does not use debt,

therefore we will consider only equity in our calculation

WACC= (Ke X We) + (Kdt X Wd)

0.076= (Ke X 1)+ 0

Since, This company uses 100% equity weight assigned to equity is 1

Cost of capital which is WACC is equal to cost of equity in this case

Value of firm is equal to value of equity on account of absence of debt

Value of Firm/ Equity = EBIT/ WACC

14,000,000= EBIT/ 0.076

EBIT= 14,000,000 X 0.076

EBIT = $ 1,064,000 or EBIT= $ 1.06 million

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Once Bitten Corp. uses no debt (it is "unleveraged"). The weighted average cost of capital is...
Once Bitten Corp. uses no debt (it is "unleveraged"). The weighted average cost of capital is 10 percent. If the current market value of the equity is $14 million and there are no taxes, what is EBIT? Note: Use the "M&M proposition I formula with taxes" and enter a 0 for the tax rate and a $0 for debt. Then solve for the EBIT. Use the WACC here as a measure of the unleveraged cost of capital RU. (Do not...
Trower Corp. has a debt–equity ratio of .80. The company is considering a new plant that...
Trower Corp. has a debt–equity ratio of .80. The company is considering a new plant that will cost $106 million to build. When the company issues new equity, it incurs a flotation cost of 7.6 percent. The flotation cost on new debt is 3.1 percent. What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer...
Williamson, Inc., has a debt?equity ratio of 2.48. The company's weighted average cost of capital is...
Williamson, Inc., has a debt?equity ratio of 2.48. The company's weighted average cost of capital is 10 percent, and its pretax cost of debt is 6 percent. The corporate tax rate is 35 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital % b. What is the company's unlevered cost of equity capital? (Do not round intermediate...
Sheaves Corp. has a debt−equity ratio of .8. The company is considering a new plant that...
Sheaves Corp. has a debt−equity ratio of .8. The company is considering a new plant that will cost $103 million to build. When the company issues new equity, it incurs a flotation cost of 7.3 percent. The flotation cost on new debt is 2.8 percent. What is the weighted average flotation cost if the company raises all equity externally? (Enter your answer as a percent and round to two decimals.) Flotation Cost    % What is the initial cost of the...
Breckinridger Corp. has a debt-equity ratio of .90. The company is considering a new plant that...
Breckinridger Corp. has a debt-equity ratio of .90. The company is considering a new plant that will cost $113 million to build. When the company issues new equity, it incurs a flotation cost of 8.3 percent. The flotation cost on new debt is 3.8 percent. a. What is the initial cost of the plant if the company raises all equity externally? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest...
Breckinridger Corp. has a debt-equity ratio of .85. The company is considering a new plant that...
Breckinridger Corp. has a debt-equity ratio of .85. The company is considering a new plant that will cost $104 million to build. When the company issues new equity, it incurs a flotation cost of 7.4 percent. The flotation cost on new debt is 2.9 percent. a. What is the initial cost of the plant if the company raises all equity externally? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest...
Breckinridger Corp. has a debt-equity ratio of .85. The company is considering a new plant that...
Breckinridger Corp. has a debt-equity ratio of .85. The company is considering a new plant that will cost $107 million to build. When the company issues new equity, it incurs a flotation cost of 7.7 percent. The flotation cost on new debt is 3.2 percent. a. What is the initial cost of the plant if the company raises all equity externally? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest...
Sheaves Corp. has a debt?equity ratio of .85. The company is considering a new plant that...
Sheaves Corp. has a debt?equity ratio of .85. The company is considering a new plant that will cost $107 million to build. When the company issues new equity, it incurs a flotation cost of 7.7 percent. The flotation cost on new debt is 3.2 percent. What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer...
Sheaves Corp. has a debt?equity ratio of .9. The company is considering a new plant that...
Sheaves Corp. has a debt?equity ratio of .9. The company is considering a new plant that will cost $116 million to build. When the company issues new equity, it incurs a flotation cost of 8.6 percent. The flotation cost on new debt is 4.1 percent. 1)What is the initial cost of the plant if the company raises all equity externally?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to...
Trower Corp. has a debt–equity ratio of .90. The company is considering a new plant that...
Trower Corp. has a debt–equity ratio of .90. The company is considering a new plant that will cost $113 million to build. When the company issues new equity, it incurs a flotation cost of 8.3 percent. The flotation cost on new debt is 3.8 percent. What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT