It is given in CFAI that Value of an unleveraged firm is ewuals to [EBT(1-t)]/WACC Does it mean that Value of unleveraged firm is [EBIT(1-t)]/WACC? Both assumes perpetual cash flows Thanks
Yes, I believe so. If there’s no leverage, there’s no interest payment, I. So EBIT = EBT. Also, WACC is weighted at 100% equity, so WACC = cost of equity. And it looks like the cash flows here are perpetual and stable (i.e., not growing).
My thoughts exactly. Thanks for reaffirming