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Data on a Levered Firm with Perpetual Cash Flows Item abbreviation Value Item full name FFCF (millions) $30.5 Firm free cash flow (or Cash Flow from Assets) g 2% pa Growth rate of OFCF rD 3% pa Cost of debt rEL 6% pa Cost of levered equity D/VL 35% pa Debt to assets ratio, where the asset value includes tax shields tc 30% Corporate tax rate The current value of debt is a. 1157.5 b. 361.86 c. 405.12 d. 446.63 e. 672.03

Data on a Levered Firm with Perpetual Cash Flows Item abbreviation Value Item full name FFCF (millions) $30.5 Firm free cash flow (or Cash Flow from Assets) g 2% pa Growth rate of OFCF rD 3% pa Cost of debt rEL 6% pa Cost of levered equity D/VL 35% pa Debt to assets ratio, where the asset value includes tax shields tc 30% Corporate tax rate The current value of debt is a. 1157.5 b. 361.86 c. 405.12 d. 446.63 e. 672.03

Essentials Of Investments
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
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Use the below information to value the debt in a levered company with annual perpetual cash flows from assets that grow. The next cash flow will be generated in one year from now.

 

Data on a Levered Firm with Perpetual Cash Flows

Item abbreviation

Value

Item full name

FFCF (millions)

$30.5

Firm free cash flow (or Cash Flow from Assets)

g

2% pa

Growth rate of OFCF

 rD

3% pa

Cost of debt

 rEL

6% pa

Cost of levered equity

 D/VL

35% pa

Debt to assets ratio, where the asset value includes tax shields

 tc

30%

Corporate tax rate

 

The current value of debt is

a.

1157.5

b.

361.86

c.

405.12

d.

446.63

e.

672.03

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