10:51 PM Sun Oct 21 Hmp Chpt 9 PDF 1.9 MB Close Canton's debt currently carries a rate of 8%, and this is the rate the firm would have to pay for any future borrowing as well. Using publicly traded firms as proxies, the estimated equity beta for Canton is 1.60. What is Canton's cost of equity capital? What is the after-tax cost of debt for the firm? b. Calculate the equity free cash flows for Canton for each of the next four years Assuming that equity free cash flows are a level perpetuity for Year 5 and beyond, estimate the value of Canton's equity. (Hint: Equity value is equal to the present value of the equity free cash flows discounted at the levered cost of equity) If the market rate of interest on Canton's debt is equal to the 8% coupon, what is the current market value of the firm's debt? What is the enter- prise value of Canton? (Hint: Enterprise value can be estimated as the sum of the estimated values of the firm's interest-bearing debt plus equity.) c. Using the market values of Canton's debt and equity calculated in part b above, calculate the firm's after-tax weighted average cost of capital. Hint: TaxDebt Value Rate/Enterprise Value KWACC Debt Cost ofEquity Value Levered Equity Enterprise Value d. What are the firm free cash fnows (FCFs) for Canton for Years 1 through 47 e. Estimate the enterprise value of Canton using the traditional WACC model, based on your previous answers and assuming that the FCPs after Year 4 are a level perpetuity equal to the Year 4 FCE. How does your estimate compare to your earlier estimate using the sum of the values of the firm's debt and equity? t. Based on your estimate of enterprise value, what is the value per share of equity for the firm if the firm has two million shares outstanding? (Remember that your calculations to this point have been in thousands of dollars) 10:51 PM Sun Oct 21 Hmp Chpt 9 PDF 1.9 MB Close Canton's debt currently carries a rate of 8%, and this is the rate the firm would have to pay for any future borrowing as well. Using publicly traded firms as proxies, the estimated equity beta for Canton is 1.60. What is Canton's cost of equity capital? What is the after-tax cost of debt for the firm? b. Calculate the equity free cash flows for Canton for each of the next four years Assuming that equity free cash flows are a level perpetuity for Year 5 and beyond, estimate the value of Canton's equity. (Hint: Equity value is equal to the present value of the equity free cash flows discounted at the levered cost of equity) If the market rate of interest on Canton's debt is equal to the 8% coupon, what is the current market value of the firm's debt? What is the enter- prise value of Canton? (Hint: Enterprise value can be estimated as the sum of the estimated values of the firm's interest-bearing debt plus equity.) c. Using the market values of Canton's debt and equity calculated in part b above, calculate the firm's after-tax weighted average cost of capital. Hint: TaxDebt Value Rate/Enterprise Value KWACC Debt Cost ofEquity Value Levered Equity Enterprise Value d. What are the firm free cash fnows (FCFs) for Canton for Years 1 through 47 e. Estimate the enterprise value of Canton using the traditional WACC model, based on your previous answers and assuming that the FCPs after Year 4 are a level perpetuity equal to the Year 4 FCE. How does your estimate compare to your earlier estimate using the sum of the values of the firm's debt and equity? t. Based on your estimate of enterprise value, what is the value per share of equity for the firm if the firm has two million shares outstanding? (Remember that your calculations to this point have been in thousands of dollars)
