1: Use the FCFF to solve the Value of Operation for the following company.(Note: all the cash flows are based on million S) Question 2: Solve the intrinsic value of common stock for the following company Note: this company doesn't issue preferred stock) Question 3: If the market price of stock is currently $10, will you recommend buying or selling this stock? Why? Current EBIT Current tax rate = Capital Expenditures - Depreciation Change in Working Capital Short Term Investment = $1,200.00 20% $800.00 $500.00 $160.00 $2,000.00 Deb/Equity ratio- 25.00% Beta of the stock- Risk-free rate = 1.5 5% 4.50% 1 billion Risk Premium- Number of Shares- The cost of debt = | 10.00% Expected Growth Rate of FCFF- 8% The free cash flows to the firm are highly sensitive to the above growth rates. They are computed as follow: EBIT ( l-t-(Cap Ex.-Deprec. & Amort.) . Change in Working Capital = Free Cash Flow to Firm The free cash flow to firm formula is used to calculate the amount available to debt and equity holders Earmings before interest and taxes". EBIT, is, as it suggests, the earnings from a company's operations before adjusting for interest expense and taxes. EBIT can be found on the company's income statement or calculated from the cash flow statement. The free cash flow to firm formula does adjust for taxes by multiplying EBIT by one minus the tax rate