DoPharm is evaluating a takeover of Phaneuf Accelerator Inc. by using the FCF and FCFE valuation...
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DoPharm is evaluating a takeover of Phaneuf Accelerator Inc. by using the FCF and FCFE valuation approaches. DoPharm has collected the following information for the current year: • Phaneuf has sales of $2,000 million with 40% operating margin, depreciation of $100 million, capital expenditures of $200 million, and an increase in working capital of $40 million. Interest expenses are $50 million. The current market value of Phaneufs outstanding debt is $1,500 million. The company has retired the existing bonds for $100 million. FCF and FCFE are expected to grow at 10% for the next five years and 6% after that. • The tax rate is 21%. • Phaneuf financed with 40% debt and 60% equity. Its before-tax cost of debt is 7.9%, and its cost of equity is 12.5%. The number of shares outstanding is 100 million. Estimate the current year's free cash flow of Phaneuf in millions Estimate cost of capital of Phaneuf in %. Based on the free cash flow approach, estimate firm value of Phaneuf in millions. Based on this approach, what is stock price of Phaneuf? DoPharm is evaluating a takeover of Phaneuf Accelerator Inc. by using the FCF and FCFE valuation approaches. DoPharm has collected the following information for the current year: • Phaneuf has sales of $2,000 million with 40% operating margin, depreciation of $100 million, capital expenditures of $200 million, and an increase in working capital of $40 million. Interest expenses are $50 million. The current market value of Phaneufs outstanding debt is $1,500 million. The company has retired the existing bonds for $100 million. FCF and FCFE are expected to grow at 10% for the next five years and 6% after that. • The tax rate is 21%. • Phaneuf financed with 40% debt and 60% equity. Its before-tax cost of debt is 7.9%, and its cost of equity is 12.5%. The number of shares outstanding is 100 million. Estimate the current year's free cash flow of Phaneuf in millions Estimate cost of capital of Phaneuf in %. Based on the free cash flow approach, estimate firm value of Phaneuf in millions. Based on this approach, what is stock price of Phaneuf?
Expert Answer:
Answer rating: 100% (QA)
To estimate the current years free cash flow FCF of Phaneuf we need to calculate the operating cash ... View the full answer
Related Book For
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
Posted Date:
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