Question

The  following are the projected cash flows to equity holders (CFFE) and to the firm (FCFF) over...

The  following are the projected cash flows to equity holders (CFFE) and to the firm (FCFF) over the next five years:

Year             CF to equity   Interest-expense*(1-Tax rate)     CF to firm

1    $250.00    $90.00 $340.00

2 $262.50   $94.50 $357.00

3    $275.63    $99.23       $374.85

4 $289.41    $104.19 $393.59   

5 $303.88 $109.40    $413.27

After year 5, the projected annual growth rate in cash flows to the firm is 6%, while the projected annual growth rate in cash flows to equity holders is 3%.

The firm has a cost of equity of 12% and a cost of capital of 9.94%. Answer the following two questions. Show all your work and formulas to get credit (there is no credit for only showing a final answer). Underline your answers.

A. What is the current market value of equity in this firm?

B. What is the current value of the firm?

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