Compressed Adjusted Present Value

Biocentrics Inc.'s expected free cash flow and its future free cash flow growth rate is listed to the right.

Biocentrics currently has no debt, and its cost of unlevered equity, rSU and tax rate is stated to the right.

Use the compressed adjusted value approach to answer the following questions.

a. Find VU (5 points)

b. Find VL and rSL if Biocentrics uses the debt amount and its cost listed to the right. (5 points)

Use the APV model that allows for growth.

c. Based on VU from Part a, find VL and rSL using the MM model (with taxes) if Biocentrics uses the amount of debt and cost of debt from part b. (5 points)

d. Explain the difference between your answers to Parts b and c. (5 points)

FCF = free cash flow	$ 450,000.00
FCF g = growth rate	3.00%
rSU = cost of unlevered equity	10.00%
T = tax rate	35.00%

Debt amount	$ 4,000,000.00
rD = cost of debt	7.00%

a	VU
b	VL
	rSL
c	VL using MM
	rSL using MM
d

The difference betweeen the answers to parts b and c are as follows: