Nina Corp. uses no debt. The weighted average cost of capital is 6 percent. If t

Question

Nina Corp. uses no debt. The weighted average cost of capital is 6 percent. If the current market value of the equity is $10 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).)

Nina Corp. uses no debt. The weighted average cost of capital is 6 percent. If the current market value of the equity is $10 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

We have given

Weighted average cost of capital (WACC)= 6%

Current Market Value of the Equity ( Ve)= $10000000

EBIT = ?

There are no taxes given in the question.

Nina corp. uses no debt, there fore value of the firm is equal to the value of the equity.

Value of the firm= EBIT/WACC

$10000000=EBIT/0.06

EBIT= $10000000* 0.06

EBIT= $600000

Thus the EBIT of Nina corp. is $600000

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