The following free cash flow information is given for a company. FCF 1. year 50 2....
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The following free cash flow information is given for a company. FCF 1. year 50 2. year 100 3. year 4. year 150 200 Risk free rate: 5% Market risk premium: 8% Expected growth rate of cash flows after 4.year = 3% Beta Equity = 2 Beta Debt-0.3 Cost of Debt-8% Terminal Value The company is planning to change the capital structure by the end of its 3rd year. For the first three years debt to value (D/V) ratio is 25% and increased to 40% afterwards. Assume the cost of debt is unchanged with the change in the debt of the company. Therefore the cost of capital for evaluating the company cash flows starting in 4th year will change. Calculate the value of the company using WACC approach. Assume corporate tax rate is 40%. The following free cash flow information is given for a company. FCF 1. year 50 2. year 100 3. year 4. year 150 200 Risk free rate: 5% Market risk premium: 8% Expected growth rate of cash flows after 4.year = 3% Beta Equity = 2 Beta Debt-0.3 Cost of Debt-8% Terminal Value The company is planning to change the capital structure by the end of its 3rd year. For the first three years debt to value (D/V) ratio is 25% and increased to 40% afterwards. Assume the cost of debt is unchanged with the change in the debt of the company. Therefore the cost of capital for evaluating the company cash flows starting in 4th year will change. Calculate the value of the company using WACC approach. Assume corporate tax rate is 40%.
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Calculating the value of the company using WACC approach Risk free rate 5 Market risk premium 8 Equi... View the full answer
Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
Posted Date:
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