Question

Victoria Enterprises expects earnings before interest and taxes ​(EBIT​) next year of $ 2 million. Its...

Victoria Enterprises expects earnings before interest and taxes ​(EBIT​) next year of $ 2 million. Its depreciation and capital expenditures will both be $ 288 comma 000​, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $ 53 comma 000 over the next year. Its tax rate is 35 %. If its WACC is 10 % and its FCFs are expected to increase at 6 % per year in​ perpetuity, what is its enterprise​ value?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Enterprise Value

The Value of an Enterprise is calculated by using the following formula

Enterprise Value = Free Cash Flow / (WACC – g)

Free Cash Flow (FCF)

Free Cash Flow (FCF) = EBIT(1 – Tax Rate) + Depreciation Expenses – Capital Expenditures – Changes in Net Working Capital

= $2,000,000(1 – 0.35) + $288,000 - $288,000 - $53,000

= [$2,000,000 x 0.65] + $288,000 - $288,000 - $53,000

= $1,300,000 + $288,000 - $288,000 - $53,000

= $1,247,000

Therefore, the Enterprise Value = Free Cash Flow / (WACC – g)

= $1,247,000 / (0.10 – 0.06)

= $1,247,000 / 0.06

= $31,175,000

Hence, the Company’s Enterprise Value will be $31,175,000

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
Victoria Enterprises expects earnings before interest and taxes ​(EBIT​) next year of $ 1 million. Its...
Victoria Enterprises expects earnings before interest and taxes ​(EBIT​) next year of $ 1 million. Its depreciation and capital expenditures will both be $ 303,000​, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $ 53,000 over the next year. Its tax rate is 40 %. If its WACC is 10 % and its FCFs are expected to increase at 3 % per year in​ perpetuity, what is its enterprise​ value?
Widget Inc. expects earnings before interest and taxes (EBIT) next year of $2 million. It depreciation...
Widget Inc. expects earnings before interest and taxes (EBIT) next year of $2 million. It depreciation and capital expenditures will both be $500,000, and it expects both to stay equal for the next few years. Their working capital will increase by $100,000 over the next year. Its tax rate is 35%. If its WACC is 10% and its FCFs are expected to increase at 4% per year in perpetuity, what is its enterprise value?
Corox Inc. is a chemical manufacturing company which reported earnings before interest and taxes of $...
Corox Inc. is a chemical manufacturing company which reported earnings before interest and taxes of $ 150 million this year. The firm has a cost of capital of 10%, a tax rate of 40% and expects earnings to grow 5% a year in perpetuity. You know that the firm has no working capital requirements but does have net capital expenditures that it needs to make to grow. The firm has return on capital of 12.5% that it expects to maintain...
Lone Star Industries expects to generate $75,000 of earnings before interest and taxes (EBIT) in perpetuity....
Lone Star Industries expects to generate $75,000 of earnings before interest and taxes (EBIT) in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm’s unlevered cost of capital is 18%, and the corporate tax rate is 40%. a. What is the value of the company as an unlevered firm? b. Suppose Lone Star just issued $160,000 of perpetual debt with an interest rate of 10% and used the proceeds to repurchase stock....
a firm with no debt or earnings before interest and txes of $45,000, the firm expects...
a firm with no debt or earnings before interest and txes of $45,000, the firm expects to keep earning the same EBIT in all future years. The firm's cost of capital is 12 percent. There is no depreciation, capital expenditures, or net working capital. a levered firm with the same operations and assets has $100,000 of debt, whose yield-to-maturity (pre-tax) is 6%. the firm expects to keep its debt at the same level in all future years. the corporate tax...
Roderick Enterprises is considering a new project. The project will has earnings before interest and taxes...
Roderick Enterprises is considering a new project. The project will has earnings before interest and taxes equal to $800,000 a year for three years. The project will require a net working capital of $140,000. The net working capital will be released at maturity of the project. The initial cash investment in the project will be $1,200,000 and will be depreciated to zero over three years. Taxes equal $0 per year. It generates a depreciation of $400,000 per year. Answer the...
​(Financial forecasting​) Sambonoza Enterprises projects its sales next year to be ​$8 million and expects to...
​(Financial forecasting​) Sambonoza Enterprises projects its sales next year to be ​$8 million and expects to earn 4 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions​ (projections):1. Current assets will equal 28 percent of​ sales, and fixed assets will remain at their current level of ​$1 million.2. Common equity is currently ​$0.90 ​million, and the firm pays out half of its​ after-tax earnings in...
Laurel Enterprises expects earnings next year of ​$3.84 per share and has a 50 % retention​...
Laurel Enterprises expects earnings next year of ​$3.84 per share and has a 50 % retention​ rate, which it plans to keep constant. Its equity cost of capital is 11 %​, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5 % per year. If its next dividend is due in one​ year, what do you estimate the​ firm's current stock price to​ be?
An unlevered company with a cost of equity of 12% expects to generate $4 million in...
An unlevered company with a cost of equity of 12% expects to generate $4 million in earnings before interest and taxes (EBIT) each year into perpetuity. The firm pays a tax rate of 31%. 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 14% generates $3 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to...
An unlevered company with a cost of equity of 18% expects to generate $5 million in...
An unlevered company with a cost of equity of 18% expects to generate $5 million in earnings before interest and taxes (EBIT) each year into perpetuity. The firm pays a tax rate of 28%. 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 $6 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT