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Janetta Corp. has an EBIT rte of 975,000 per yr that is expected to continue in perpetuity. The unlevered cost of equity for the company is 14 percent, and the corporate tax rate 35 percent. The company also has a perpetual bond issue outstanding with a market value of $1.9 million.

a. What is the value of the company?

b. The CFO of the company informs the company president that the value of the company is $4.8 million. Is the CFO correct?

Basic Finance, Finance

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