Answered step by step
Verified Expert Solution
Question
1 Approved Answer
19. A firm has just reported EBIT of $1,000 for the year that has just ended. The firm also recorded $300 in depreciation and
19. A firm has just reported EBIT of $1,000 for the year that has just ended. The firm also recorded $300 in depreciation and made a $500-dollar investment in new machinery. No other changes or financial information was reported. Going forward the firm expects Free cash flow to grow at a rate of 3% per year. The weighted average cost of capital for the firm is 11.5% and the tax rate is 21%. The firm has 10 bonds outstanding. The bonds have a face value of $100, pay an annual coupon with a coupon rate of 5% and a yield to maturity of 4%. The bonds mature in 4 years. The firm also has 1,000 shares of stock outstanding and $250 in cash. What is the share price of the firm?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
1 Calculate Free Cash Flow to the Firm FCFF EBIT Earnings Before Interest and Taxes 1000 Tax Rate ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started