Watson Dunn is planning to value BCC Corporation, a provider of a variety of industrial metals and

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Watson Dunn is planning to value BCC Corporation, a provider of a variety of industrial metals and minerals. Dunn uses a single - stage FCFF approach. The financial information
Dunn has assembled for his valuation is as follows:

  • The company has 1,852 million shares outstanding.
  • The market value of its debt is $ 3.192 billion.
  • The FCFF is currently $ 1.1559 billion.
  • The equity beta is 0.90; the equity risk premium is 5.5 percent; the risk - free rate is 5.5 percent.
  • The before - tax cost of debt is 7.0 percent.
  • The tax rate is 40 percent.
  • To calculate WACC, he will assume the company is financed 25 percent with debt.
  • The FCFF growth rate is 4 percent.

Using Dunn’s information, calculate the following:
A. WACC.
B. Value of the firm.
C. Total market value of equity.
D. Value per share.

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...
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Equity Asset Valuation

ISBN: 978-0470571439

2nd Edition

Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen

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