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.)
$3.05 million
$4.10 million
$5.35 million
$6.85 million