WACC.  c)     Total value of the fi rm

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
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Charles Jones is evaluating Reliant Home Furnishings by using a three-stage growth model. He has accumulated the following information:

·        Current FCFF $745 million

·        Outstanding shares 309.39 million

·        Equity beta 0.90,

·        risk-free rate 5.04 percent;

·        equity risk premium 5.5 percent

·        Cost of debt 7.1 percent

·        Marginal tax rate 34 percent

·        Capital structure 20 percent debt, 80 percent equity

·        Long-term debt $1.518 billion

·        Growth rate of FCFF

-        8.8 percent annually in stage 1, years 1–4

-        7.4 percent in year 5,

-        6.0 percent in year 6,

-        4.6 percent in year 7

-        3.2 percent in year 8 and thereafter

From the information that Jones has accumulated, estimate the following:

b)     WACC. 

c)     Total value of the fi rm.

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