Tropical Fruit Extracts expects its earnings before interest and taxes to be $218,000 a year forever. Currently, the firm has no debt. The cost of equity is 16.3 percent and the tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm?
A) $371,429
B) $431,971
C) $747,485
D) $869,325
E) $988,315

Question

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The Answer of Tropical Fruit Extracts expects its earnings before interest and taxes to be $218,000 a year forever. Currently, the firm has no debt. The cost of equity is 16.3 percent and the tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm?
A) $371,429
B) $431,971
C) $747,485
D) $869,325
E) $988,315

Tropical Fruit Extracts Expects Its Earnings Before Interest and Taxes