Assume that you are a consultant in PwC and you are assisting Aztek Teknoloji on an IPO. Here is the information you have at your access: the management team of Aztek Teknoloji intends to keep the debt to value ratio at 21%. At this capital structure, the debt holders will require 7% return while the stockholders will expect a return of 14%. Next year's OCF (operating cash flow-sum of depreciation and profit after tax) is expected to be $59 and Aztek Teknoloji plans to invest $21 million in plant and NWC. Both OCFS and investment expenditures are expected to expand 4% per year in perpetuity. a. Calculate the total value of Aztek Teknnoloji. Assume a tax rate of 21%. Hint: Start by calculating WACC, then discount free cash flows by the WACC. (Intermediate calculations should not be rounded. Enter your answers in millions rounded to 1 decimal place.) b. Calculate the value of the Aztek Teknoloji's equity. Assume a tax rate of 21%. Hint: The value in (a) is the value of the entire firm. To find the value of equity, you need to subtract the value of debt from the total firm value. (Intermediate calculations should not be rounded. Enter your answers in millions rounded to 1 decimal place.)

Assume that you are a consultant in PwC and you are assisting Aztek Teknoloji on an IPO. Here is the information you have at your access: the management team of Aztek Teknoloji intends to keep the debt to value ratio at 21%. At this capital structure, the debt holders will require 7% return while the stockholders will expect a return of 14%. Next year's OCF (operating cash flow-sum of depreciation and profit after tax) is expected to be $59 and Aztek Teknoloji plans to invest $21 million in plant and NWC. Both OCFS and investment expenditures are expected to expand 4% per year in perpetuity. a. Calculate the total value of Aztek Teknnoloji. Assume a tax rate of 21%. Hint: Start by calculating WACC, then discount free cash flows by the WACC. (Intermediate calculations should not be rounded. Enter your answers in millions rounded to 1 decimal place.) b. Calculate the value of the Aztek Teknoloji's equity. Assume a tax rate of 21%. Hint: The value in (a) is the value of the entire firm. To find the value of equity, you need to subtract the value of debt from the total firm value. (Intermediate calculations should not be rounded. Enter your answers in millions rounded to 1 decimal place.)

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 5MC: David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing....

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