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1 . LockBenz Corporation, one of the largest defense contractors in the world, reported EBITDA of $ 1 , 2 9 0 million in 2

1. LockBenz Corporation, one of the largest defense contractors in the world, reported EBITDA of $1,290 million in 2023, prior to interest expenses of $215 million and depreciation charges of $400 million. Capital expenditures in 2023, amounted to $450 million, and working capital was 7% of revenues. Revenues in 2023 were $13,500 million. Please note that the companys fiscal year ends on October 31,2023.
The firm expects revenues, earnings, capital expenditures and depreciation to grow at 8% a year from 2023 to 2028, after which time the growth rate is expected to drop to 3%. Capital spending is expected to offset depreciation in the stable state period.
The debt outstanding was $3.5 billion (in book value terms) but was trading at a market value of $3 billion. The companys debt is rated AA. Similar AA bonds have a yield to maturity of 8%. The companys stock has a beta of 1.2, the market risk premium is 5% and treasury bonds have a yield of 6%. The companys effective marginal tax rate was 40%. Assume the companys optimal debt ratio is 40%.
a. What discount rate should be used to value the companys cash-flows? WACC
b. Estimate the Free cash flow to the firm (FCFF) for 2024 to 2028(5 years).
c. Estimate the horizon value in 2028.
d. Estimate the total value of the firm at the beginning of 2024 fiscal year (November 2023).
e. Estimate (at the beginning of 2024 fiscal year) the value of the equity in the firm and the value per
share. Assume the company does not have any significant short-term investments.

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