Question
Grexin corp is expexted to have free cashflow in the coming year of 6.25 million and...
Grexin corp is expexted to have free cashflow in the coming year of
6.25 million and its free cashflow is expected to grow at a 3% per
year there after. Grexin corp has an equity cost of capital 10% and
a debt cost of capital of 6% and it pays a corporate tax rate of
35%. Grexin corp maintains a debt equity ratio of 1
what is the value of Grexin today in millions, given its debt
to equity ratio?
a. 0.0800
b. 77.8256
c. 125.000
d. 0.1000
e.33.2778
f. 0.0695
g.158.2277
h. 0.06000
i. 20.0000
Homework Answers
Answer #1
_______________________________
_______________________________
WACC = Cost of Equity * weight of Equity + After tax Cost of Debt * Weight of Debt
= 10% * 1 /2 + 6% * (1-0.35) * 1 /2
= 6.95%
Value = Free cash Flow 1 / WACC - Growth Rate
= 6.25 mn / (0.0695 - 0.03)
= 158.2277 mn
Option g is correct.
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