Castle Corp. generated $2 million

Castle Corp. generated $2 million in operating income from sales of $20 million during the latest fiscal year. The firm’s interest expense was $500,000, and the corporate income tax rate was 40%. Investors require a rate of return of 18%. Using the dependence hypothesis approach to valuation, what is the market value of Castle?
A.
$9.6 million
B.
$8.3 million
C.
$5.1 million
D.
$7.2 million
E.
$6.5 million

Solution