Problem
Steed & Co. is an all equity firm. At the end of the current year, the CFO expects EBIT to be $5M and the same earnings are expected annually in perpetuity. The company is not growing so CAPEX and investments in net working capital are zero. The cost of equity for Steed & Co. is 14%. Steed's prime competitor is a company called E.Peel Inc. E.Peel Inc is identical to Steed & Co. in every respect except that E.Peel has $2.5M of long term debt outstanding. What is the value of E.Peel's equity? The corporate tax rate is 30%.