You have been asked to value Alcoa and have come up with the following inputs.
• The stock has a beta of 0.90, estimated over the last five years. During this period, the firm had an average debt/equity ratio of 20% and an average cash balance of 15%.
• The firm’s current market value of equity is 1.6 billion and its current market value of debt is $800 million.
The current cash balance is $500 million.
• The firm earned earnings before interest and taxes of $450 million, which includes the interest income on the current cash balance of $50 million. The firm’s tax rate is 40%.
• The firm is in stable growth, and its earnings from operations are expected to grow 5% a year. The net capital expenditures next year are expected to be $90 million.
Estimate the value of the noncash assets of the firm, its total value, and the value of its equity.