Using the information above, complete the following questions: a) Calculate the free cash flows of

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Question:

Using the information above, complete the following questions:

a) Calculate the free cash flows of Boston Turkey Inc. for the 3 years 2008 to 2010 (8 points)

b) Due to its limited history, the beta of the stock cannot be estimated from past prices. You do have information about comparable listed firms and their betas:

The comparable firms all have the same tax rate as Boston Turkey (40%). Compute the median unlevered beta for comparables and calculate the cost of equity for Boston Turkey Inc. (12 points)

c) As general information, you have also collected data on interest coverage ratios, ratings and interest rate spreads, and they are summarized below:

What is the after-tax cost of debt for Boston Turkey Inc? (6 points)

d) Based on your calculation in part b) and c), what is the cost of capital? (5 points)

e) Compute the enterprise value (EV) as of year-end 2007. (10 points)

f) In 2008, Boston Turkey's book value of debt is 400 million, and book value of equity is $600 million. Estimate the economic value added (EVA) of the company in 2008. (6 points)

g) Assume now that you are the CEO of Boston Turkey and that your compensation next year will depend upon whether you increase the EVA or not. What are the three ways in which you can increase your EVA? (6 points)