A private firm has equity of 4000 and debt of 1000 (book values) and a FCFF of 100. The risk premium is 6%, the risk-free rate 3% and the corporate tax rate 30%. Cost of debt is 4% and the expected growth rate of FCFF is 2% forever. The firm operates in a sector with an unlevered beta of 0.5. Assume that the book and market values of debt are the same. 

Find the "market" value of equity that produces consistency in the D/E ratio, beta levered, and the WACC. Use the iteration method?

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To find the market value of equity that produces consistency in the DE ratio beta levered and the WA... View the full answer