Question

Restex has a debt-equity ratio of 0.56, an equity cost of capital of 18%, and a debt cost of capital of 14%. Restex's corporate tax rate is 21%, and its market capitalization is $272 million.

a. If Restex's free cash flow is expected to be $3 million one year from now and will grow at a constant rate, what expected future growth rate is consistent with Restex's current market value?

If Restex's free cash flow is expected to be $3 million in one year, the expected future growth rate is...............%. (Round to two decimal places.)

b. Estimate the value of Restex's interest tax shield.

Interest tax shield value is $............million. (Round to the nearest million.)

Answer #1

Restex has a debt-equity ratio of 0.62, an equity cost
of capital of 14%, and a debt cost of capital of 11%. Restex's
corporate tax rate is 30%, and its market capitalization is $163
million.
a. If Restex's free cash flow is expected to be $3
million one year from now and will grow at a constant rate, what
expected future growth rate is consistent with Restex's current
market value?
b. Estimate the value of Restex's interest tax
shield.

Restex has a? debt-equity ratio of 0.69?, an equity cost of
capital of 13%?, and a debt cost of capital of 10%. Restex's
corporate tax rate is 38%?, and its market capitalization is $294
million.
a. If? Restex's free cash flow is expected to
be $11 million one year from now and will grow at a constant? rate,
what expected future growth rate is consistent with? Restex's
current market? value?
b. Estimate the value of? Restex's interest tax
shield.

Restex has a debt-equity ratio of 0.99, an equity cost of capital
of 16%, and a debt cost of capital of 7%. Restex's corporate tax
rate is 30%, and its market capitalization is $287 million.
a. If Restex's free cash flow is expected to be $8 million
one year from now and will grow at a constant rate, what expected
future growth rate is consistent with Restex's current market
value?
b. Estimate the value of Restex's interest tax shield.

Acme Storage has a market capitalization of $104
million, and debt outstanding of $136 million. Acme plans to
maintain this same debt-equity ratio in the future. The firm pays
an interest of
7.5% on its debt and has a corporate tax rate of
38%.
a. If Acme's free cash flow is expected to be $21.60
million next year and is expected to grow at a rate of 3% per
year, what is Acme's WACC?
b. What is the value of...

Your firm has a market capitalization of 60,000,000 and debt of
20,000,000. It intends to maintain this debt-to-equity ratio. Free
cash flows for the next year are 4,000,000. They are expected to
grow 5% per year. The equity cost of capital is 0.12. The debt cost
of capital is the risk-free rate. The corporate tax rate is 0.20.
Calculate the present value of the tax shield assuming it is risk
free.

Company’s financials: Market value of debt € 500,000 Cost of
debt 7% Tax rate 20% Adjusted beta 1.6 Risk-free rate of return 4%
Equity risk premium 5% Optimal capital structure: Debt – 45%,
equity – 55% Free cash flow (current year) € 82,000 Projected
long-term growth rate in free cash flow 4% Number of shares
outstanding 22,000 Assume that the free cash flow to the firm is
expected to grow indefinitely. Using the DCF method,
estimate: 1. the value of...

Suppose? Alcatel-Lucent has an equity cost of capital of 10.4
%?, market capitalization of $ 11.52 ?billion, and an enterprise
value of $ 16 billion. Assume? Alcatel-Lucent's debt cost of
capital is 6.1 %?, its marginal tax rate is 36 %?, the WACC is 8.58
%?, and it maintains a constant? debt-equity ratio. The firm has a
project with average risk. Expected free cash? flow, debt?
capacity, and interest payments are shown in the? table:
Year 0 1 2 3...

Your company has an equity cost of capital of 10%, debt cost of
capital of 6%, market capitalization of $10B, and an enterprise
value of $14B. Your company pays a corporate tax rate of 35%. Your
companymaintains a constant debt-to-equity ratio.
a)What is the (net) debt value of your company? (Hint:Net debt =
D–Excess cash)
b)What is the(net)debt-to-equity ratio of your company?
c)What is the unlevered cost of capital of your company?(Hint:When
a firm has a target leverageratio, its unlevered...

Suppose Alcatel-Lucent has an equity cost of capital of 10.7
%,market capitalization of$ 10.50 billion, and an enterprise value
of $15
billion. Suppose Alcatel-Lucent's debt cost of capital is 7.2 %
and its marginal tax rate is 34 %
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio,
what is the value of a project with average risk and the expected
free cash flows as shown here,
Year 0 1 2 3
FCF ($ million) -100 ...

6) Suppose Alcatel-Lucent has an equity cost of capital of
10%, market capitalization of $10.80 billion, and an enterprise
value of $14.4 billion. Suppose Alcatel-Lucent's debt cost of
capital is 6.1% and its marginal tax rate is 35%.
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio,
what is the value of a project with average risk and the expected
free cash flows as shown here,
Year 0, 1, 2, 3
FCF ($ million) -100, 50,...

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