Question: Exercise 6 (Exam fall 2016) You are analysing a valuation done on a stable firm by a well-known analyst. Based on the expected firm free

Exercise 6 (Exam fall 2016) You are analysing a valuation done

Exercise 6 (Exam fall 2016) You are analysing a valuation done on a stable firm by a well-known analyst. Based on the expected firm free cash flow next year of $30 million and an expected growth rate of 5%, the analyst has estimated a value of $750 million. However, he has made the mistake of using the book values of debt and equity in his calculation. While you do not know the book value weights he used, you know that the firm has a cost of equity of 12% and an after-tax cost of debt of 6%. You also know that the market value of equity is three times the book value of equity, while the market value of debt is equal to the book value of debt. Estimate the correct value for the firm

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