Question: Flagstaff Enterprises is expected to have free cash flow in the coming year of $8 million, and this free cash flow is expected to grow

Flagstaff Enterprises is expected to have free cash flow in the coming year of $8 million, and this free cash flow is expected to grow at a rate of 3% per year thereafter. Flagstaff Enterprises has an equity cost of capital of 15%, a debt cost of capital of 9%, and it is in the 30% corporate tax bracket. The company maintains a .5 debt to equity ratio.

a. What is the pre-tax WACC (or unlevered WACC)?

b. What is the companys after-tax WACC (levered WACC)?

c. What is the value of the company as a levered firm?

d. What is the present value of the interest tax shield if the unlevered value of the firm is $50 million?

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