1. "A firm pays dividends of $5 million once annually. Analysts expect the dividends to remain at this amount indefinitely. The cost of equity is 14%. a. Calculate the value of the firm. b. Analysts now expect that dividends will grow annually by 3%. Calculate the firm value." 2. A firm has expected free cash flows to the firm of $12 million annually which are expected to grow at 3.5% each year. It uses both debt and equity. The cost of equity is 13% and the after-tax cost of debt is 7.5%. The debt to asset ratio is 40%. Calculate the value of the firm. 3. "A firm has the projected cash flows as indicated below. a. Assuming the Year 5 free cash flow amount is expected to grow at 3% annually indefinitely and the firm has a Weighted Average Cost of Capital (WACC) of 9.8% calculate the firm value. b. If the market value of the debt is $170 million what is the value of equity?" Year "Free Cash Flow to Firm ($ in millions)" 0 $25 1 $30 2 $33 3 $35 4 $37 5 $38

Rasmussen College - BUS 330 - Week 10 Assignment Maximum Points: 30 1. A firm pays dividends of $5 million once annually. Analysts expect the dividends to remain at this amount indefinitely. The cost of equity is 14%. a. Calculate the value of the firm. b. Analysts now expect that dividends will grow annually by 3%. Calculate the firm value. 2. A firm has expected free cash flows to the firm of $12 million annually which are expected to grow at 3.5% each year. It uses both debt and equity. The cost of equity is 13% and the after-tax cost of debt is 7.5%. The debt to asset ratio is 40%. Calculate the value of the firm. 3. A firm has the projected cash flows as indicated below. a. Assuming the Year 5 free cash flow amount is expected to grow at 3% annually indefinitely and the firm has a Weighted Average Cost of Capital (WACC) of 9.8% calculate the firm value. b. If the market value of the debt is $170 million what is the value of equity? Year 0 1 2 3 4 5 Free Cash Flow to Firm ($ in millions) $25 $30 $33 $35 $37 $38