Question: Yo Chan is evaluating ALPHA Company by using the free cash flow to the firm (FCFF) valuation method. Yo has collected the following information. Currently,

Yo Chan is evaluating ALPHA Company by using the free cash flow to the firm (FCFF) valuation method. Yo has collected the following information.

  • Currently, ALPHA has net income of 100 million, depreciation of 50 million, capital expenditures of 20 million and an increase in working capital of 30 million.
  • Interest expenses are 100 million. The current market value of ALPHAs debt is 430 million.
  • FCFF is expected to grow at 4 percent forever.
  • The tax rate is 30%
  • ALPHA is financed with 20% debt and 80% equity
  • The before tax cost of debt is 6% and the before tax cost of equity is 10%.

what is the estimated company value of the firm based on single-stage FCFF valuation?

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