1. You are going to value Lauryns Doll Co. using the FCF model. After consulting various sources,

you find that Lauryn has a reported equity beta of 1.4, a debt-to-equity ratio of .3, and a tax rate of

30 percent. Based on this information, what is Lauryns asset beta?

1.4 = BAsset x (1 + .3(1-.30))

BAsset = 1.16

2. Using your answer to the previous question, calculate the appropriate discount rate assuming a risk-free rate of 4 percent and a market risk premium of 7 percent.

Discount Rate = Risk Free Rate + (Beta x Market Risk Premium)

Discount Rate = 4% + (1.16 x 7%)

Discount Rate = 12.12%

3. Lauryns Doll Co. had EBIT last year of $40 million, which is net of a depreciation expense of

$4 million. In addition, Lauryn had a capital spending of $8 million. Using the information from

Problem 1, what is Lauryns FCF for the year?

FCF = $40 + $4 - $8 = $36 Million

4. Using your answers from Questions 1 through 3, value Lauryns Doll Co. assuming her FCF is

expected to grow at a rate of 3 percent into perpetuity. Is this value the value of the equity?

Firm Value = FCF (1+g) / R G

Firm Value = 36 (1 + .03) / (.121 - .03)

Firm Value = $407.47 I need help with the last part of question (4).