Consider the following information about a firm. Debt ratio = 35% Cost of equity = 0.14 Cost

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Consider the following information about a firm.

Debt ratio = 35%

Cost of equity = 0.14

Cost of debt = 0.09

Tax rate = 25%

FCFs over the next 3 years and the growth rate of the cash flows after the third year are:

Year 1 FCF = 120 USD

Year 2 FCF = 250 USD

Year 3 FCF = 400 USD

After year 3, the company has a constant growth of 3% per year.

a) What is the value of the firm?

b) Evaluate the fair value of the firm’s single share, if IPOs of the firm provide for outstanding shares in the number of 1,000, and the market value of the firm’s debt is equal to 1,200 USD.

Related Book For answer-question

Fundamentals of Investing

ISBN: 978-0133075359

12th edition

Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk

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Posted Date: Feb 04, 2023 02:27 AM

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Consider the following information about a firm. Debt ratio = 35% Cost of equity = 0.14 Cost

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Answer The Value of the firm is the present value of all the future FCF generated as under Year Cash... View the full answer

Fundamentals of Investing

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