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Assume youve forecasted and calculated the following Free Cash Flows to Equity Holders Year FCFE

Assume you’ve forecasted and calculated the following Free Cash Flows to Equity Holders.

Year

FCFE

1

$1989.13

2

$2022.29

3

$2313.89

You have also made the assumption that after year 4, the cash flows to equity holders will grow at a constant rate of 5% per year indefinitely. The company recently paid an annual dividend of $6.89 and has a current share price of $122. The company also expects that dividends will grow at a constant rate of 3.13% per year indefinitely. Given this information, what is the value of this firm’s equity?

 

2)Assume you’ve forecasted and calculated the following Free Cash Flows to the Firm.

Year

FCFF

1 : $7,389

2: $8,993

3: $9,744

You have also made the assumption that after year 3, the company will grow by a rate of 2.8%.

Further suppose that the company has a current share price of $88.99 and a total of 4.5 million shares outstanding. The company currently has debt with a total face value of $891 million. These outstanding bonds are currently priced to yield 8.9% while quoting at 97% of total face value. The current t-bill rate is 1.1% and the market risk premium is 5.3%. We’ve estimated the ß to be 1.84. The marginal tax rate is 21%. Given this information, what is the value of this firm?

 

3)The following is a five year forecast for TruthHurts Incorporated.

Free Cash Flow (in millions)

2020: -14

2021: 5

2022: 29

2023: 47

2024: 69

After 2024, earnings before interest and tax will remain constant at $99 million, depreciation will equal capital expenditures each year, and working capital will increase by $5 million. Truth Hurt's WACC is 17.9% and its tax rate is 21%.

Estimate the market value of TruthHurts at the end of 2019.

 

May 21 2020 View more View Less

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