a. Following information is about Steady plc, a company in steady state. Operating income £500m Tax rate 25% Dividend Payout ratio 70% Capital expenditure £500m Depreciation £200m Net Operating Working Capital £250m Book value of Debt £600m Number of shares outstanding 100m Beta 1.05 Steady state growth rate 1% Risk-free rate 2% Equity risk premium 6% Pre-tax cost of debt 4% Current price per share £10 Required: i. Estimate the equity value per share using the Free Cash Flow to Firm model. Use the current share price for calculating the WACC.
a. Following information is about Steady plc, a company in steady state. Operating income £500m Tax rate 25% Dividend Payout ratio 70% Capital expenditure £500m Depreciation £200m Net Operating Working Capital £250m Book value of Debt £600m Number of shares outstanding 100m Beta 1.05 Steady state growth rate 1% Risk-free rate 2% Equity risk premium 6% Pre-tax cost of debt 4% Current price per share £10 Required: i. Estimate the equity value per share using the Free Cash Flow to Firm model. Use the current share price for calculating the WACC.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. a. Following information is about Steady plc, a company in steady state.
Operating income £500m
Tax rate 25%
Dividend Payout ratio 70%
Capital expenditure £500m
Net Operating Working Capital £250m
Book value of Debt £600m
Number of shares outstanding 100m
Beta 1.05
Steady state growth rate 1%
Risk-free rate 2%
Equity risk premium 6%
Pre-tax cost of debt 4%
Current price per share £10
Required:
i. Estimate the equity value per share using the
model. Use the current share price for calculating the WACC.
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