Question

St. Blues Technologies' expected (next year) EBIT is $405.00, its tax rate is 34%, depreciation is...

St. Blues Technologies' expected (next year) EBIT is $405.00, its tax rate is 34%, depreciation is $87.00, planned capital expenditures are $71.00, and planned INCREASES in net working capital is $15.00.

What is the free cash flow to the firm (FCFF)?

$

The firm's interest expense is $15.00. Assume the tax rate is 34% and the net debt of the firm INCREASES by $5.00.

What is the free cash flow to equity (FCFE)?

$

What is the market value of equity if the FCFE is projected to grow at 4% indefinitely and the cost of equity is 11%?  (Round this answer to 2 decimal places.)  

$

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Answer #1

Answer a.

Free Cash Flow to Firm = EBIT * (1 - tax) + Depreciation - Planned Capital Expenditures - Increase in NWC
Free Cash Flow to Firm = $405.00 * (1 - 0.34) + $87.00 - $71.00 - $15.00
Free Cash Flow to Firm = $267.30 + $1.00
Free Cash Flow to Firm = $268.30

Answer b.

Free Cash Flow to Equity = Free Cash Flow to Firm - Interest Expense * (1 - tax) + Increase in Net Debt
Free Cash Flow to Equity = $268.30 - $15.00 * (1 - 0.34) + $5.00
Free Cash Flow to Equity = $268.30 - $9.90 + $5.00
Free Cash Flow to Equity = $263.40

Answer c.

Market Value of Equity = Free Cash Flow to Equity / (Cost of Equity - Growth Rate)
Market Value of Equity = $263.40 / (0.11 - 0.04)
Market Value of Equity = $3,762.86

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