Stephen A. Schwarzman, CEO of Blackstone Group is considering acquiring an electric vehicle startup Lucid Motors. Tesla Inc., a comparable firm to Lucid Motors, has an unlevered cost of capital of 9.5%. Lucid Motors' free cash flows and interest expenses from 2021 to 2023 are projected to be

    2021               2022           2023

FCF 1 million 1.2 million 1.4 million

Interest Expense 0.5 million 0.5 million 0.5 million

Starting from 2024, Lucid motors' free cash flow will increase at a rate of 5% per year,and it will maintain a debt-value ratio of 0.5 from 2024. Lucid Motors' FCF in 2024 will be $2 million. Assume corporate tax rate is 20%, and interest rate on Lucid motors' debt is 5%.

a. What is Lucid Motors' levered value VL in 2023?

b. What is Lucid Motors' levered value VL in 2020?

c. What is Lucid Motors' value of equity in 2020?

Answer rating: 100% (QA)

To calculate Lucid Motors levered value VL we need to determine the present value of its future free ... View the full answer