CougarCorp is a privately-owned fuel cell company. The possibility of CougarCorp going public has attracted a...

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CougarCorp is a privately-owned fuel cell company. The possibility of CougarCorp going public has attracted a lot of market attention, and you want to estimate its enterprise value. ROUND ANSWERS TO 2 DECIMAL PLACES • CougarCorp's current D/E ratio is 1/9 and it plans to keep this ratio fixed. • CougarCorp's long-term bonds are traded at a YTM of 5%6. • You determined that CougarCorp's operating risk characteristics are comparable to those of FuelCell, • whose costs of debt and equity are 4.5% and 12%, respectively. • FuelCell's D/E ratio is 1/4, which is expected to remain stable. FuelCell has an EV/EBIT ratio of 15. • CougarCorp's corporate tax rate is 40%. (All the other M&M assumptions hold.) Suppose that you forecasted CougarCorp's free cash flows for the next three years as follows: Year 1 (1) Free cash $87.44B flow (2) Terminal value Year 2 $96.77B Year 3 $104.55B ???? You need to estimate the terminal value at year 3 based on the "exit" multiple approach. f CougarCorp's EBIT at year 3 is expected to be $127B and FuelCell has an EV/EBIT ratio of 15, what is the terminal value? CougarCorp is a privately-owned fuel cell company. The possibility of CougarCorp going public has attracted a lot of market attention, and you want to estimate its enterprise value. ROUND ANSWERS TO 2 DECIMAL PLACES • CougarCorp's current D/E ratio is 1/9 and it plans to keep this ratio fixed. • CougarCorp's long-term bonds are traded at a YTM of 5%6. • You determined that CougarCorp's operating risk characteristics are comparable to those of FuelCell, • whose costs of debt and equity are 4.5% and 12%, respectively. • FuelCell's D/E ratio is 1/4, which is expected to remain stable. FuelCell has an EV/EBIT ratio of 15. • CougarCorp's corporate tax rate is 40%. (All the other M&M assumptions hold.) Suppose that you forecasted CougarCorp's free cash flows for the next three years as follows: Year 1 (1) Free cash $87.44B flow (2) Terminal value Year 2 $96.77B Year 3 $104.55B ???? You need to estimate the terminal value at year 3 based on the "exit" multiple approach. f CougarCorp's EBIT at year 3 is expected to be $127B and FuelCell has an EV/EBIT ratio of 15, what is the terminal value?