HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table,
Question:
HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return:
Market Value Required Return Bonds $480,000,000 8.00% Common stock $720,000,000 12.00% Total $1,200,000,000
Other financial information: Net income available to common shareholders $105,600,000 Interest expenses $60,000,000 Depreciation $38,400,000 Investment in fixed capital $67,200,000 Investment in working capital $19,200,000 Net borrowing $24,000,000 Tax rate 30% Stable growth rate of FCFF 2% Stable growth rate of FCFE 2.5%
1) Using FCFF, what is the present value of the firm, and the present value of the equity?
2) Using FCFE, what is the present value of the equity?
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter