Find FCFE using FCFF 4. If the firm has a cost of capital of 25% and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Find FCFE using FCFF 4. If the firm has a cost of capital of 25% and FCFF is expected to grow at 10% for next two years, and afterwards grow steadily at 8% forever, find the value of this firm? 1 Abbreviated financial statements are given for Fletcher Corporation in the following table Revenues $600.0 Operating expenses $520.0 Depreciation 16.0 Earnings before 64.0 interest and taxes Less Interest Expense Less: Taxes 23.6 Equals: Net income 35.4 Addendum: Yearend working 150 capital 5.0 2016 $690.0 500.0 18.0 72.0 5.0 26.8 40.2 200 2017 Principal repayment 25.0 25.0 Capital expenditures 20 ho Yearend working capital in 2015 was $160 million and the firm's marginal tax rate is 40% in both 2016 and 2017. Estimate the following for 2016 and 2017: a Free cash flow to equity b Free cash flow to the firm 3-Airtel Ltd. has FCFF of GHS700 million and FCFE of GHS620 million. Airtels before-tax cost of debt is 5.7 percent, and its required rate of return for equity is 11.8 percent. The company expects a target capital structure consisting of 20 percent debt financing and 80 percent equity financing. The tax rate is 33.33 percent, and FCFF is expected to grow forever at 5.0 percent. Airtel has debt outstanding with a market value of GHS2.2 billion and has 200 million outstanding common shares 1. What is Airtel's weighted average cost of capital? 2. What is the value of Airtel s equity using the FCFF valuation approach? 3. What is the value per share using this FCFF approach? Find FCFE using FCFF 4. If the firm has a cost of capital of 25% and FCFF is expected to grow at 10% for next two years, and afterwards grow steadily at 8% forever, find the value of this firm? 1 Abbreviated financial statements are given for Fletcher Corporation in the following table Revenues $600.0 Operating expenses $520.0 Depreciation 16.0 Earnings before 64.0 interest and taxes Less Interest Expense Less: Taxes 23.6 Equals: Net income 35.4 Addendum: Yearend working 150 capital 5.0 2016 $690.0 500.0 18.0 72.0 5.0 26.8 40.2 200 2017 Principal repayment 25.0 25.0 Capital expenditures 20 ho Yearend working capital in 2015 was $160 million and the firm's marginal tax rate is 40% in both 2016 and 2017. Estimate the following for 2016 and 2017: a Free cash flow to equity b Free cash flow to the firm 3-Airtel Ltd. has FCFF of GHS700 million and FCFE of GHS620 million. Airtels before-tax cost of debt is 5.7 percent, and its required rate of return for equity is 11.8 percent. The company expects a target capital structure consisting of 20 percent debt financing and 80 percent equity financing. The tax rate is 33.33 percent, and FCFF is expected to grow forever at 5.0 percent. Airtel has debt outstanding with a market value of GHS2.2 billion and has 200 million outstanding common shares 1. What is Airtel's weighted average cost of capital? 2. What is the value of Airtel s equity using the FCFF valuation approach? 3. What is the value per share using this FCFF approach?
Expert Answer:
Answer rating: 100% (QA)
Answer Lets address each question step by step Question 1 a Free Cash Flow to Equity FCFE and Free Cash Flow to the Firm FCFF for 2016 and 2017 Well u... View the full answer
Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Posted Date:
Students also viewed these accounting questions
-
Political theorist Karl Marx is known for his theory that the working class, to put an end to capitalism and establish a communist society, would eventually rise up and overthrow the upper-class...
-
1. Based on the forecasts above, use the spreadsheet below to construct a pro forma income statement for Idexo over the next five years. What is the annual growth rate of the firm's net income over...
-
Bill and Fiona Russell have always enjoyed craft beer, and in recent years have started making small batches at home. As they experimented, they mastered several niche recipes including a key lime...
-
Litchfield Industries gathered the following information for the month ended June 31: The static budget volume is 5000 units: Overhead flexible budget: Number of units 8,000 9,000 10,000 Standard...
-
Courtside Concepts Co. began business on January 2, 2011. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in...
-
Write a Java program to determining a leap year: Determining Leap Year? This program first prompts the user to enter a year as an int value and checks if it is a leap year. A year is a leap year if...
-
In Exercise 19, would it be unusual for a household to have three Sedan cars? Explain your reasoning. Data from Exercises 19 The number of Sedan cars per household in a small town Cars 0 1 2 3 381...
-
Uranium Mining Company, founded in 1982 to mine and market uranium, purchased a mine in 1983 for $900 million. It estimated that the uranium had a market value of $150 per ounce. By 2010, the market...
-
The 18-year, $1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is $895, and the market's required yield to maturity on a comparable-risk bond is...
-
Hugo Boss AG is a German designer, manufacturer, and distributer of mens and womens clothing, operating in the higher end of the clothing retail industry. During the period 20042017, the company...
-
Charge It Company operates in perfect capital markets and earns a net operating profit of $2 million each and every year. It operates in an industry in which the required return on assets is 8%. The...
-
What is the Global Reporting Initiative? What are the types of information suggested by the GRI to be disclosed by companies?
-
What is social entertainment? What is branded entertainment? How is it distinguished from content marketing used in social publishing?
-
The legal system practiced currently in Turkey is mainly based on a. Sharia as codified in the Majallah. b. common law of England. c. Continental European law. d. Canon law.
-
The following message from Veronica Dunaway, the vice president of human relations, seeks to help supervisors and managers write safe and helpful performance reviews. Your Task. Analyze the vice...
-
What elements make an Islamic contract defective or invalid besides the prohibited elements in question 8? Question 8 Which of the following is NOT a condition of the subject matter of the Islamic...
-
An analyst gathered the following information for a stock and market parameters: stock beta= 1.03; expected return on the Market = 11.24%; expected return on T-bills = 4.05%; current stock Price =...
-
14. In testing the existence assertion, an auditor ordinarily works from the a. Financial statements to the accounting records. b. General journal to the general ledger. c. Supporting evidence to the...
-
How can a company effectively force conversion of a convertible security?
-
Clyne Industries wants to market its new Slammin Jammin Basketball Goal Set. To bring this product to the market will require the purchase of equipment costing $650,000. Shipping and installation...
-
What issues of business ethics may be involved in the establishment of a firms dividend payment amounts?
-
D, a single taxpayer, holds a 25% ownership interest in an LLC that operates a department store. Ds allocable share of net operating income from the LLC is \($100,000\) for the year. D also works...
-
A and B form the AB partnership by contributing \($10,000\) each. A and B agree to share profits and losses 75% to A, 25% to B. In Year 1 of operations, AB had business revenues of \($10,000,\)...
-
Can an allocation that does not have economic effect be cured by state law?
Study smarter with the SolutionInn App