You are building a free cash flow to the firm model. You expect sales to grow from $2 billion for the year that just ended to $2.2 billion five years from now. Assume that the company will not become any more or less efficient in the future. Assume that the company will grow at a constant rate for 5 years, and then at a constant rate of 1.424488% for year 6 and onward after that. Use the following information to calculate the value of the equity on a per-share basis. a. Assume that the company currently has $660 million of net PP&E. b. The company currently has $220 million of net working capital. c. The company has operating margins of 12 percent and has an effective tax rate of 28 percent. d. The company has a weighted average cost of capital of 20 percent. This is based on a capital structure of two-thirds equity and one-third debt. e. The firm has 2 million shares outstanding. 4 Do not round intermediate calculations. Round your answer to the nearest cent.
You are building a free cash flow to the firm model. You expect sales to grow from $2 billion for the year that just ended to $2.2 billion five years from now. Assume that the company will not become any more or less efficient in the future. Assume that the company will grow at a constant rate for 5 years, and then at a constant rate of 1.424488% for year 6 and onward after that. Use the following information to calculate the value of the equity on a per-share basis. a. Assume that the company currently has $660 million of net PP&E. b. The company currently has $220 million of net working capital. c. The company has operating margins of 12 percent and has an effective tax rate of 28 percent. d. The company has a weighted average cost of capital of 20 percent. This is based on a capital structure of two-thirds equity and one-third debt. e. The firm has 2 million shares outstanding. 4 Do not round intermediate calculations. Round your answer to the nearest cent.
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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Transcribed Image Text:You are building a free cash flow to the firm model. You expect sales to grow from $2 billion for the year that just ended to $2.2 billion five years from now.
Assume that the company will not become any more or less efficient in the future. Assume that the company will grow at a constant rate for 5 years, and
then at a constant rate of 1.424488% for year 6 and onward after that. Use the following information to calculate the value of the equity on a per-share
basis.
a. Assume that the company currently has $660 million of net PP&E.
b. The company currently has $220 million of net working capital.
c. The company has operating margins of 12 percent and has an effective tax rate of 28 percent.
d. The company has a weighted average cost of capital of 10 percent. This is based on a capital structure of two-thirds equity and one-third debt.
e. The firm has 2 million shares outstanding.
A
Do not round intermediate calculations. Round your answer to the nearest cent
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