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Krisko Industries generated FCFF of $430,000 last year. The firm is expected to grow at a...

Krisko Industries generated FCFF of $430,000 last year. The firm is expected to grow at a rate of 15% for the next two years. After this high growth period, the firm is expected to grow at a rate of 6% for the forseeable future. The following data applies to Krisko:

  • Market value of debt = $3,000,000
  • Book value of debt = $2,800,000
  • Pre-tax cost of debt = 6%
  • Bingo's beta = 1.4
  • Risk-free rate - 3%
  • Market risk premium = 8%
  • Shares outstanding = 500,000
  • Current share price = $10
  • Book value of equity = $2,000,000
  • Tax rate = 40%

Using an FCFF approach, which of the following is closest to the value of the firm's equity?

  • About $3,720,000
  • About $5,740,000
  • About $7,320,000
  • About $9,660,000
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