Lisa Marie SA is considering going long a stake in Geneva Fashions SA which has of late dominated the online Suisse market during the COVID period. Report extracted from the accounts of Geneva Fashions and based on Free Cash Flow valuations indicate the following data: Net Income CHF 16’800’000 Dividends 6’720’000 Depreciation 8’400’000 Investments in Fixed Assets 7’680’000 Working Capital Investments 960’000 Interest paid on Debt 1’850’000 Other information on Geneva Fashions show that a total of CHF 3’400’000 was raised via Bond issue, but conversely another CHF 3 million par value which had been outstanding reached maturity and was redeemed at its par value. Lisa Marie expects Geneva Fashion’s revenues will grow at 5% constantly per year, volatility of Geneva fashions is 18%, Country risk premium of 3%; the correlation between Geneva fashions and the SMI index is 0.59 and the coefficient of variation of 0.6 Lisa Marie has also complied following data to enable her to estimate the the discount rate;

Risk free rate of return 4%

Price per Share of Geneva Fashions stock CHF 30

Sensitivity of Geneva Fashions stock to changes in exchange rate 5%

Geneva fashions Active return 4.5%

Yield-to-Maturity on debt 8%

Debt-to Equity 1/3

Standard deviation of the SMI index 8%

Market risk premium 7%

Geneva Fashions Stock Alpha 9%

Geneva Fashions Active Risk 3.9%

Marginal Tax rate 35%

Sensitivity of Geneva Fashions stock to changes in Market premium 2.1

a). Using above info, compute the Value of using FCFE 

b). Using above info, compute the Value of using FCFF

Answer rating: 100% (QA)

FCFE Net Income Capital Expenditures Depreciation Change in Non cash Working View the full answer