What is the unlevered value of the firm

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A company is an all-equity firm that has projected earnings before interest and taxes (EBIT) of $500,000 forever. The current cost of equity is 10% and the tax rate is 30%. The company is in the process of issuing $2 million of bonds at par that carry a 5% annual coupon. What is the unlevered value of the firm (in millions)? (Note: You should use MM capital structure model with corporate taxes, but without personal taxes and bankruptcy costs.)

$3.50 million
$2.80million
$5.00 million
$6.50 million

 

Reference no: EM13263464

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