Charles Jones is attempting to evaluate the company Reliant Home Furnishing using a 3-stage growth model. He has gathered the following information:

- Current Free Cash Flows to the Firm (FCFF) = $755 million;

- Outstanding shares = 311 million;

- Equity Beta = 1.02; Risk-free rate: 4.9%; Equity risk premium = 5.11%;

- Cost of debt = 7.1%;

- Marginal tax rate = 34%;

- Capital structure = 23% debt, 77% equity;

- Long-term debt = $1.4 billion;

- FCFF growth rates = 8.1% per year for level 1, years 1-4;

7.3% for year 5, 5.9% for year 6, 4.5% for year 7, 3.01% for year 8 and onwards.

Based on the information Jones has collected, estimate:

1. Weighted Average Cost of Capital (WACC)

2. Total firm value

3. Total equity value

4. Value per share.

5. Provide the definition of FCFF, explaining each of the components that contribute to obtaining this value.

Answer rating: 100% (QA)

Answer L ets calculate the required values step by step Step 1 Calculate the Cost of Equity Ke Ke Riskfree rate Equity Beta Equity Risk Premium 49 102 511 49 52112 101112 Step 2 Calculate the Weighted ... View the full answer