Cezzane Enterprises operates a chain of textile fabric stores all over the country. You have been provided
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Question:
Cezzane Enterprises operates a chain of textile fabric stores all over the country. You have been provided with the following projections for the company (in crores of Rupees):
1 | 2 | 3 | 4 (Terminal year) | |
EBIT | 120 | 145 | 176 | 185 |
Net Cap Ex | 50 | 60 | 70 | 82.56 |
Total Working Capital | 80 | 90 | 100 | 120 |
Cost of Equity | 14% | 16% | 13% | 15% |
Pre - tax cost of debt | 8% | 9.50% | 9% | 9% |
Debt to Total assets ratio | 25% | 25.00% | 25% | 25% |
The company has a tax rate of 40%, but it has net operating losses of ₹ 195 crores that it is carrying forward. The firm will grow at 6% forever, starting in year 4. The working capital currently is ₹ 50 crores.
a. Estimate the expected cash flows to the firm for the next 4 years.
b. Estimate the cost of capital each year for the next 4 years.
c. Estimate the terminal value.
d. Estimate the value of the firm today.
Related Book For
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel
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