Maddux Corporation has an EBIT of $865, 000 per year that isexpected to continue in perpetuity. The unlevered cost of equity forthe company is 13 percent and the corporate tax rate is 24 percent.The company also has a perpetual bond issue outstanding with amarket value of $2.25 million. What is the value of the company? (Do not round intermediate calculations and enter your answer indollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) The CFO of the company informs the companypresident that the value of the company is $4.8 million. Is the CFOcorrect?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Maddux Corporation has an EBIT of $865, 000 per year that is
expected to continue in perpetuity. The unlevered cost of equity for
the company is 13 percent and the corporate tax rate is 24 percent.
The company also has a perpetual bond issue outstanding with a
market value of $2.25 million. What is the value of the company? (
Do not round intermediate calculations and enter your answer in
dollars, not millions of dollars, rounded to 2 decimal places, e.g
., 1,234,567.89) The CFO of the company informs the company
president that the value of the company is $4.8 million. Is the CFO
correct? 

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