Question

Given the following information on the LK Co. and using the equation V=cf/(r-g), calculate, a) Cash...

Given the following information on the LK Co. and using the equation V=cf/(r-g), calculate,
a) Cash flow per share.
b) Total value of the LK co.
c) Mix of capital financing.
Info: Value per share =$71, r=0.10; g =0.03, 11 million shares outstanding; long term debt = $281,000,000.

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Answer #1

a) Cashflow per share= Valuer per share*(r-g)= 71*(0.10-0.03)= 71*0.07=$49.7

b) Total value of LK means the enterprise vlaue of the company which is given by: Market cap+ debt

there fore value of company= 71*11million+281 million= 781million+281 million= $1062 million=$1.062 billion

c) mix of capital financing= Total debt/Total equity

total debt= 281 million

total equity=cashflow per share*no fo shares= 49.7*11 million=546.7

debt/equity= 546.7/281=1.945

So debt financing=281/(281+546)=34%

Equity Financing= 66%

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