Scarlett Corp. uses no debt. The weighted average cost of capital is 6.4 percent. The current market value of the equity is $27 million and the corporate tax rate is 35 percent. What is EBIT? (Enter your answer in dollars, not millions of dollars, e. g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16)

Question

Business

Claudia Dorsey

11 April, 01:34

Scarlett Corp. uses no debt. The weighted average cost of capital is 6.4 percent. The current market value of the equity is $27 million and the corporate tax rate is 35 percent. What is EBIT? (Enter your answer in dollars, not millions of dollars, e. g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16)

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Answers (1)

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Sammy Lee · Answer 1

EBIT = 2,658,461.54

Explanation:

Assuming the Company fullfil his expected return

Equity x WACC = Net Income

27,000,000 x 0.064 = 1,728,000 Net Income

Net income x (1-tax-rate) + interest = EBIT

1,728,000 x (1-.35) + 0 = EBIT

EBIT = 2,658,461.54

If Scarlett Corp uses no debt, then thre are no interest.