JDS is company financed by long-term debt (PLN 5,000,000) and equity (PLN 4,000,000). The company pays...

  

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JDS is company financed by long-term debt (PLN 5,000,000) and equity (PLN 4,000,000). The company pays 20% income tax. The company's revenues planned for the next year amount to 1,800,000 PLN, variable costs constitute 25% of this amount, fixed costs without depreciation 200,000 PLN, depreciation 100,000 PLN, investment expenditures 120,000 PLN. It is known that the rate of return expected by the owners is 16%, and the cost of debt is at the level of 10%. The receivables turnover ratio is 14 days and the liabilities account for 20% of revenues. Please assume that in the period preceding the forecast there were no receivables and liabilities. According to the plans prepared by the sales department in the second year, revenues will increase by about 10% compared to the first year, and variable costs will account for 30% of revenues. Fixed costs and depreciation will remain at the level of the previous year. The assumption concerning working capital will not change. Free cash flow is assumed to grow after the second year at a rate of 3% per annum. On the basis of the information provided, please: b. calculate equity value on the basis of FCFF approach JDS is company financed by long-term debt (PLN 5,000,000) and equity (PLN 4,000,000). The company pays 20% income tax. The company's revenues planned for the next year amount to 1,800,000 PLN, variable costs constitute 25% of this amount, fixed costs without depreciation 200,000 PLN, depreciation 100,000 PLN, investment expenditures 120,000 PLN. It is known that the rate of return expected by the owners is 16%, and the cost of debt is at the level of 10%. The receivables turnover ratio is 14 days and the liabilities account for 20% of revenues. Please assume that in the period preceding the forecast there were no receivables and liabilities. According to the plans prepared by the sales department in the second year, revenues will increase by about 10% compared to the first year, and variable costs will account for 30% of revenues. Fixed costs and depreciation will remain at the level of the previous year. The assumption concerning working capital will not change. Free cash flow is assumed to grow after the second year at a rate of 3% per annum. On the basis of the information provided, please: b. calculate equity value on the basis of FCFF approach

Answer rating: 100% (QA)

To calculate the equity value based on the Free Cash Flow to the Firm FCFF approach we need to follow these steps 1 Calculate the Free Cash Flow to th... View the full answer