Consider the following 4-year projections for Peg Inc.: Actual Forecast 2007 2008 2009 2010 2011 EBIT...

 

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Consider the following 4-year projections for Peg Inc.: Actual Forecast 2007 2008 2009 2010 2011 EBIT 90 100 120 150 190 Depreciation 20 30 40 50 55 Increase in deferred taxes 2 2 3 4 4 Capital expenditures 50 92 63 64 69 Net working capital change 10 -5 -5 15 15 debt financing 10 7 15 20 Corporate tax rate: 38% Cost of equity is 16%, cost of debt is 10%, and debt ratio is 50% Interest coverage ratio (defined as EBIT-to-interest expense) is 10 After 2011, EBIT are expected to grow at 3% Estimate the free cash flows of Peg Inc. for the 4 years 2008 to 2011 and compute the enterprise value as of year-end 2007. b. Estimate the free cash flows to equity holders for the 4 years 2008 to 2011 and compute the equity value as of year-end 2007 Compute the debt value as of year-end 2007 а. С. Consider the following 4-year projections for Peg Inc.: Actual Forecast 2007 2008 2009 2010 2011 EBIT 90 100 120 150 190 Depreciation 20 30 40 50 55 Increase in deferred taxes 2 2 3 4 4 Capital expenditures 50 92 63 64 69 Net working capital change 10 -5 -5 15 15 debt financing 10 7 15 20 Corporate tax rate: 38% Cost of equity is 16%, cost of debt is 10%, and debt ratio is 50% Interest coverage ratio (defined as EBIT-to-interest expense) is 10 After 2011, EBIT are expected to grow at 3% Estimate the free cash flows of Peg Inc. for the 4 years 2008 to 2011 and compute the enterprise value as of year-end 2007. b. Estimate the free cash flows to equity holders for the 4 years 2008 to 2011 and compute the equity value as of year-end 2007 Compute the debt value as of year-end 2007 а. С.

Answer rating: 100% (QA)

Solution Calculation of weighted average cost of capital WACC Given Cost of Equity 16 Cost of Debt 10 Post tax cost of Debt 101038 620 Weight of equit... View the full answer