Question

Peter Corperations expects to have free cash flow in the coming year (FCF1) of $1.75 million, and its FCF is expected to grow at a rate of 3.5% per year thereafter. Peter Coperations has a cost of equity of 12% and a cost of debt of 7%, and it pays a corporate tax rate of 40%. If Peter Coperations maintains a D/E ratio of 2.5, what is the value of its interest tax shield?

Answer #1

Cost of debt is tax deductible. We need to calculate the price of the stock using before tax cost of debt and after tax cost of debt to calculate the value of tax shield.

We are given the D/E E ratio of 2.5 which implies that for every 1 unit of Equity, there are 2.5 units of Debt so total capital is D+E = 1+2.5=3.5

Using this we can calculate the before tax and after tax WACC

Now we can calculate the Before tax and after tax value of the company

So value of tax shield is 59.76-35.51 = 24.25 million

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?...

Use the information for the question(s) below. Flagstaff
Enterprises is expected to have free cash flow in the coming year
of $8 million, and this free cash flow is expected to grow at a
rate of 3% per year thereafter. Flagstaff has an equity cost of
capital of 13%, a debt cost of capital of 7%, and it is in the 35%
corporate tax bracket. If Flagstaff currently maintains a .5 debt
to equity ratio, then the value of Flagstaff...

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 current unlevered WACC?
a. 0.0800
b. 77.8256
c. 125.000
d. 0.1000
e.33.2278...

Suppose Glead corporation’s projected free cash flow for next
year is FCF1 = $150 million and FCF is expected to grow at a
constant rate of 7.25%. If the company’s weighted average cost of
capital is 10.5%, the value of debt is currently $200 million and
the outstanding number of common stocks is 80 million, and there is
no preferred stocks issued. Compute the value of this stock.

M's
FCF in the coming year is $8 million; this FCF is expected to grow
at 3% per year later. M has an equity cost of capital of 13%, a
debt cost of capital of 7% and it is in the 35% corporate tax
bracket. If M keeps a 0.5 D/E ratio, what is its value and what us
the value of teh internet tax shield?

Beishan Technologies' end-of-year free cash flow (FCF1) is expected
to be $70 million, and free cash flow is expected to grow at a
constant growth rate of 5% a year in the future. The firm's WACC is
10%, and it has $600 million of long-term debt and preferred stock.
If the firm has 34 million shares of common stock outstanding, what
is the estimated intrinsic value per share of their common stock?
Your answer should be between 14.20 and 68.54

Zen Corporation forecasts that its free cash flow in the coming
year, i.e., at t = 1, will be -$100 million, its FCF at t = 2 will
be -$40 million and its FCF at t = 3 will be $55 million. After
Year 3, FCF is expected to grow at a constant rate of 5% forever.
If the weighted average cost of capital is 12%, what is the firm’s
value of operations, in millions?

Suppose that Ret is considering the acquisition of another firm
in its industry for $100 million. The acquisition is expected to
increase Ret’s free cash flow by $5 million the first year, and
this contribution is expected to grow at a rate of 3% every year
thereafter. Ret currently maintains a debt to equity ratio of 1,
its corporate tax rate is 21%, its cost of debt rD is 6%, and its
cost of equity rE is 10%. Ret will...

PureFood Inc forecasts that its free cash flow in the coming year,
i.e., at t=1, will be $10 million, but its FCF at t=2 will be $20
million. After Year 2 , FCF is expected to grow at a constant rate
of 5% forever. If the weighted average cost of capital is 14%, what
is the firm’s value of operations, in millions?

You must estimate the intrinsic value of IST Technologies’
stock. The end-of-year free cash flow (FCF1) is expected
to be $55.00 million, and it is expected to grow at a constant rate
of 5.0% a year thereafter. The company’s WACC is 9.0%, it has
$105.0 million of long-term debt plus preferred stock outstanding,
and there are 20.0 million shares of common stock outstanding. What
is the firm's estimated intrinsic value per share of common
stock?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 5 minutes ago

asked 12 minutes ago

asked 26 minutes ago

asked 33 minutes ago

asked 44 minutes ago

asked 48 minutes ago

asked 49 minutes ago

asked 50 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago