A firm you are analysing expects to have FCF of 3,000 next year. After that you expect that the non-depreciation FCF (i.e., the FCF minus the depreciation tax shield) will grow at a rate of 7% for 3 years. Growth will then stabilize to 3% per year, forever. The depreciation tax shield is based on fixed assets already purchased, so it is known with certainty. Assume that the $2,000 depreciation is charged perpetually and that the amount of depreciation is unchanged from year to year. Assume that all cash flows occur throughout the year. Tax rate is 25%. Required return is 12% while risk-free rate is 4%. The firm has $10,000 in debts and 5,000 shares outstanding.

Necessary

What is the DTS in year 1?

What is NDCF in year 1?

What is PV(DTS)?

What is PV(NDCF)?

What is the share price?

Answer rating: 100% (QA)

1 Calculation of the Depreciation Tax Shield DTS in year 1 DTS Depreciation Tax Rate DTS 2000 025 DT... View the full answer