Projected cash flows for Boyle Clinic are shown below. Boyle has a 40% tax rate and has
Question:
Projected cash flows for Boyle Clinic are shown below. Boyle has a 40% tax rate and has a target capital structure of 40% debt.It's current Corporate Cost of Capital is 10% and the required return (cost) of its equity capital is 15%.Boyle currently has $150M in outstanding debt.The best available estimate is that Boyle's cash flows will grow by 3% annually after year 4.Estimates are that similar companies have been selling for 1.3x operating revenues.
$000's. Year 1 Year 2 Year 3 Year 4
Revenues600,000630,000670,000700,000
Expenses (not including depreciation)500,000525,000550,000575,000
Depreciation50,00052,00055,00058,000
Earnings before interest and taxes50,00053,00065,00067,000
Interest12,00013,00014,00015,000
Net income before taxes38,00040,00051,00052,000
Taxes at 40%15,00016,00020,00021,000
Net income after taxes23,00024,00031,00031,000
Estimated retentions19,00020,00025,00026,000
a.What is the value of Boyle using theFree Operating Cash Flowmethod?
b.What is the value of Boyle using the market multiple method?(2)
Expert Answer:
a Free Cash Flow to Equity FCFE Method Calculate Free Cash Flow to Equity FCFE for each year Year EB... View the full answer
