Question

French Fries Corporation (FCF) generates a constant FCF of $1 million from years 1 through 4....

French Fries Corporation (FCF) generates a constant FCF of $1 million from years 1 through 4. Beginning on year 5, retention policy allows investments, increasing FCFs by 4% a year from year 5 onward. We also know that FCF has e constant debt to value ratio of 0.5 and; a corporate tax rate of 25%, and an equity cost of capital of 10% and a debt cost of capital of 8%. Estimate the continuation value for the constant growth perpetuity and the Enterprise Value of FCF.

a. $26 million; $22.42 million b. $17.33 million; $17.19 million c. $26 million; $21.69 million d. $17.33 million; $16.42 million

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer is

a. $26 million; $22.42 million

Formulae

Formulae as above

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Waffles Corporation (WC) generates a constant FCF of $1 million from years 1 through 4. Beginning...
Waffles Corporation (WC) generates a constant FCF of $1 million from years 1 through 4. Beginning on year 5, retention policy allows investments, increasing WCs by 4% a year from year 5 onward. We also know that WC has e constant debt to value ratio of 0.5 and; a corporate tax rate of 25%, and an equity cost of capital of 10% and a debt cost of capital of 8%. Estimate the continuation value for the constant growth perpetuity and...
Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $2,450.00 million this...
Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $2,450.00 million this year (FCF₁ = $2,450.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Extensive Enterprise Inc.’s weighted average cost of...
Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $7,295.00 million this...
Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $7,295.00 million this year (FCF1FCF1 = $7,295.00 million), and the FCF is expected to grow at a rate of 26.20% over the following two years (FCF2FCF2 and FCF3FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF4FCF4). If Extensive Enterprise Inc.’s weighted average cost of capital (WACC) is 12.78%, what is the...
An unlevered company with a cost of equity of 11% generates $5 million in earnings before...
An unlevered company with a cost of equity of 11% generates $5 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to include debt by adding $5 million in debt with a pre-tax cost of 6% to its capital structure and using the proceeds to reduce equity by a like amount as to keep total invested capital unchanged. The firm pays a tax rate of 28%. Assuming that the company's EBIT stream...
Year 0 1 2 3 4 FCF ($ million) -30 25 25 25 25 FCF for...
Year 0 1 2 3 4 FCF ($ million) -30 25 25 25 25 FCF for firm Canyon Shopping Center (CSC) is listed in the table above. After year 4 FCF is expected to be $0. The weighted average cost of capital for CSC is 7%. If cash = $10 million, the market value of ASC’s debt = $35 million, and the number of shares outstanding is 5 million, estimate the share price. Instruction: Type ONLY your numerical answer in...
Blitz Corp. has $50 million of debt and 3 million shares of common stock outstanding. The...
Blitz Corp. has $50 million of debt and 3 million shares of common stock outstanding. The firm has $30 million of excess cash. An analyst has forecasted the following future Free Cash Flows (FCFs) for the firm: $12 million, 13 million, 14 million, and 15 million for years 1 (t=1), 2, 3, and 4, respectively. The firm and the FCFs will then grow at a constant 5% annual rate forever after year 4. Blitz has a weighted average cost of...
1. 123 Warehousing is expected to generate a free cash flow (FCF) of $5,730.00 million this...
1. 123 Warehousing is expected to generate a free cash flow (FCF) of $5,730.00 million this year (FCF₁ = $5,730.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If 123 Warehousing’s weighted average cost of capital...
An unlevered company with a cost of equity of 12% expects to generate $6 million in...
An unlevered company with a cost of equity of 12% expects to generate $6 million in earnings before interest and taxes (EBIT) each year into perpetuity. The firm pays a tax rate of 26%. Based on its after-tax earnings and cost of equity, what is the value of the firm? An unlevered company with a cost of equity of 16% generates $5 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to...
1.Smith and T Co. is expected to generate a free cash flow (FCF) of $5,500.00 million...
1.Smith and T Co. is expected to generate a free cash flow (FCF) of $5,500.00 million this year (FCF₁ = $5,500.00 million), and the FCF is expected to grow at a rate of 20.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.46% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Smith and T Co.’s weighted average...
Heavy Metal Corporation is expected to generate the following free cash flows over the next five...
Heavy Metal Corporation is expected to generate the following free cash flows over the next five years: Year 1 2 3 4 5 FCF ($millions) 53 68 78 75 82 After then, the free cash flows are expected to grow at the industry average of 4% per year (continuation value). Using the discounted free cash flow model and a weighted average cost of capital of 14%, estimate the approximate share price for Heavy Metal if the firm has $50 million...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT