The Book Worm is an unlevered company with an aftertax net income of $118,406. The unlevered cost of capital is 13.8 percent and the tax rate is 21 percent. What is the value of this company?
A) $557,709
B) $1,320,022
C) $858,014
D) $1,378,414
E) $952,607

Question

Quizplus · Accepted Answer

The formula to calculate the value of an unlevered company is:
Value of the company = Aftertax net income / Unlevered cost of capital

Plugging in the given values, we get:
Value of the company = $118,406 / 0.138 = $858,014

Therefore, the correct answer is C.

The Book Worm Is an Unlevered Company with an Aftertax