EXERCISE 1)

Suppose that a company has free cash flow to the firm (FCFF) of 1.7 billion and free cash flow to equity (FCFE) of 1.3 billion. Company's WACC is 8%, and its required rate of return for equity is 10%. FCFF is expected to grow forever at 5%, and FCFE is expected to grow forever at 6%. The company has debt outstanding of 10 billion (in market value). The company has 2.5 billion shares outstanding.

a) Calculate the total value of this company's equity using the FCFF valuation approach b) Calculate the total value of this company's equity using the FCFE valuation approach and find also the value per share of this company

EXERCISE 2)

Suppose that 90% of company's total assets of 450 million euros are financed with debt capital. Its cost of debt is 8% before taxes, and its cost of equity capital is 12%. Company's last years' pre- tax income was 5.1 million euros and the tax rate was 40%. What was this company's residual income during the last year?