Question

- Blackbriar’s most recent free cash flow to the firm (FCFF) is $5,000,000. The company’s target debt-to-equity ratio is 0.25. The company has 2 million shares of common stock outstanding and the market value of the firm’s debt is $10 million. The firm’s tax rate is 40%, the cost of equity is 10%, the firm’s pre-tax cost of debt is 8%, and the expected long-term growth rate in FCFF is 5%. Estimate the equity value per share using a single-stage free cash flow to the firm model.

Answer #1

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Blackbriar’s most recent free cash flow to the firm (FCFF) is
$5,000,000. The company’s target debt-to-equity ratio is 0.25. The
company has 2 million shares of common stock outstanding and the
market value of the firm’s debt is $10 million. The firm’s tax rate
is 40%, the cost of equity is 10%, the firm’s pre-tax cost of debt
is 8%, and the expected long-term growth rate in FCFF is 5%.
Estimate the equity value per share using a single-stage free...

Cagiati Enterprises has FCFF of $600 million. Cagiati’s
before-tax cost of debt is 5.7%, and its required rate of return
for equity is 11.8%. The company’s capital structure consisting of
20% debt and 80% equity. The tax rate is 33.33%, and FCFF is
expected to grow forever at 5.0%. Firm’s total debt outstanding
with a market value of $2200 million. What is the cash flow
valuation of the firm’s equity? Select one:
a. $9975.3m b. $9915.3m c. $9985.3m d. $9965.3m

A private firm has equity of 4000 and debt of 1000 (book values)
and a FCFF of 100. The risk premium is 6%, the risk-free rate 3%
and the corporate tax rate 30%. Cost of debt is 4% and the expected
growth rate of FCFF is 2% forever. The firm operates in a sector
with an unlevered beta of 0.5. Assume that the book and market
values of debt are the same. Find the “market” value of equity that
produces...

A firm is expected to grow in perpetuity at a rate of 5%. If the
current year free cash flow is 15 million, the cost of equity is
16%, after-tax cost of debt is 9% and the target debt to equity
ratio is 0.25, then what is the value of this firm today if the tax
rate is 20%?

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 =...

A firm has a target debt-equity ratio of.37. The cost of debt is
9% and the cost of equity is 15%. The company has a 34% tax rate. A
project has an initial cost of $70,000 and an annual after-tax cash
flow of $21,000 for six years. There is no salvage value or net
working capital requirement. What is the net present value of the
project using the WACC?
a.15942
b.14092
c.14899
d.15513
e.15011

Company’s financials: Market value of debt € 500,000 Cost of
debt 7% Tax rate 20% Adjusted beta 1.6 Risk-free rate of return 4%
Equity risk premium 5% Optimal capital structure: Debt – 45%,
equity – 55% Free cash flow (current year) € 82,000 Projected
long-term growth rate in free cash flow 4% Number of shares
outstanding 22,000 Assume that the free cash flow to the firm is
expected to grow indefinitely. Using the DCF method,
estimate: 1. the value of...

Discuss the similarities and differences between using FCFF
(Free Cash Flow to the Firm) versus using FCFE (Free Cash Flow to
Equity). When might one approach be preferred over the other? Be
sure to discuss the proper discount rate to use for each approach
as well.

Acquirer Company’s management believes that there is a 70
percent chance that Target Company’s free cash flow to the firm
will grow at 25 percent per year during the next five years from
this year’s level of $4 million. Sustainable growth beyond the
fifth year is estimated at 5 percent per year. However, they also
believe that there is a 30 percent chance that cash flow will grow
at half that annual rate during the next five years and then...

7. David Ortiz Motors has a target capital structure of 20%
debt and 80% equity. The yield to maturity on the company’s
outstanding bonds is 5.7%, and the company’s tax rate is 23%.
Ortiz’s CFO has calculated the company’s WACC as 10.45%. What is
the company’s cost of equity capital?
8. On January 1, the total market value of the Tysseland
Company was $60 million. During the year, the company plans to
raise and invest $30 million in new projects....

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