Once Bitten Corp. uses no debt. The weighted average cost of capital is 8.4 perc

Question

Once Bitten Corp. uses no debt. The weighted average cost of capital is 8.4 percent. If the current market value of the equity is $25 million and there are no taxes, what is EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

Once Bitten Corp. uses no debt. The weighted average cost of capital is 8.4 percent. If the current market value of the equity is $25 million and there are no taxes, what is EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

Explanation / Answer

WACC=Ke Earning after Tax = Value of Equity*ke(WACC) 25*8.4%=$ 2.1 Million Since the co. is operating in tax free world thus EBT=EAT Since there is no debt as well thus EBIT= EBT Therefore EBIT=2.1 $Million

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