Financial analyst is evaluating XS Company by using theFCFF valuation approach. The analyst has collected the followinginformation

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Question:

Financial analyst is evaluating XS Company by using theFCFF valuation approach. The analyst has collected the followinginformation on its expected revenues and after-tax operating income(in $ millions), each year for the next 5 years:

The company currently has 250 million shares trading at$10/share (book value of equity=$1 000 million). The company alsohad $800 million in debt outstanding (both book and market value)and $500 million in non-core financial investments and cash. Thecost of capital for the firm is expected to be 10% for the next 5years and drop to 8% thereafter.

Questions:

Assuming that the company is going to reinvest 40% ofit?s after-tax operating income in next 5 years, estimate the freecash flow to the firm each year for the next fiveyears
After five years the expected growth rate of revenuesand after-tax operating income drop to 3% in perpetuity and thecompany reinvestment rate drops to 30%. Estimate the terminal valueof the company at the end of year 5.
Estimate the value of the equity per sharetoday.