You are valuing a company at year end 2022 that has a target capital structure of 65% equity and 35% debt. The estimated cost of equity is 14% and the net cost of debt is 5%, respectively. The estimated stream of free cash flow to the firm (FCF) is: Values is £ 2023 2024 2025 2026 11 230 12 560 13 240 FCF 2022 10 000 14 350 The expected nominal growth rate of FCF in perpetuity is 1.75%. At year end 2022 the estimated level of interest-bearing debt, cash, minorities, and financial investments are £12000, £8000, £2000, and £7500, respectively. The current market capitalization of the company is £ 135000. Your investment recommendation is:
You are valuing a company at year end 2022 that has a target capital structure of 65% equity and 35% debt. The estimated cost of equity is 14% and the net cost of debt is 5%, respectively. The estimated stream of free cash flow to the firm (FCF) is: Values is £ 2023 2024 2025 2026 11 230 12 560 13 240 FCF 2022 10 000 14 350 The expected nominal growth rate of FCF in perpetuity is 1.75%. At year end 2022 the estimated level of interest-bearing debt, cash, minorities, and financial investments are £12000, £8000, £2000, and £7500, respectively. The current market capitalization of the company is £ 135000. Your investment recommendation is:
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 valuing a company at year end 2022 that has a target capital structure of 65% equity and 35% debt. The estimated cost of equity is
14% and the net cost of debt is 5%, respectively. The estimated stream of free cash flow to the firm (FCF) is:
Values is £
2023 2024
2025
2026
14 350
a.
O b.
FCF
The expected nominal growth rate of FCF in perpetuity is 1.75%. At year end 2022 the estimated level of interest-bearing debt, cash,
minorities, and financial investments are £12000, £8000, £2000, and £7500, respectively. The current market capitalization of the company is £
135000. Your investment recommendation is:
O C.
2022
10 000 11 230 12 560 13 240
Buy, as the estimated year end 2022 equity value is £147345
Sell, as the estimated year end 2022 equity value is £128735
Buy, as the estimated year end 2022 equity value is £153293
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