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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I need help with both questions
Transcribed Image Text:**Tropetech Inc. Financial Analysis**
**Problem**: Tropetech Inc. has an expected net operating profit after taxes (EBIT(1 – T)) of $1,200 million in the coming year. In addition, the firm is expected to have net capital expenditures of $180 million, and net operating working capital (NOWC) is expected to increase by $15 million.
**Question**: How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year?
- $1,365 million
- $1,035 million
- $18,490 million
- $1,005 million
**Additional Information**:
Tropetech Inc.’s FCFs are expected to grow at a constant rate of 4.62% per year in the future. The market value of Tropetech Inc.’s outstanding debt is $4,894 million, and its preferred stocks’ value is $2,719 million. Tropetech Inc. has 225 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 13.86%.
**Term | Value (Millions)**
- Total firm value
- Intrinsic value of common equity
- Intrinsic value per share
**Instructions**: Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in the table. Assume the firm has no nonoperating assets.
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