Answered step by step
Verified Expert Solution
Question
1 Approved Answer
2002E 2003E 2004E 2005E Terminal Value EBIAT 50 50 60 60 10 10 10 10 CAPX Depreciation 5 5 5 5 5 5 5 5
2002E 2003E 2004E 2005E Terminal Value EBIAT 50 50 60 60 10 10 10 10 CAPX Depreciation 5 5 5 5 5 5 5 5 Investment in Working Capital 5 5 5 5 interest 1 1 1 1 goodwill Risk free rate: 4% Market risk premium: 7% Expected growth rate of cash flows after 4 year = 5% Beta Asset = 1.6 Beta Debt=1 Cost of Debt=8% The company is planning to change the capital structure by the end of its 2rd year. For the first two years debt to equity ratio is 2/3 and 1/4 afterwards. Assume the cost of debt is decreased to 6% with the change in the debt of the company. Calculate the value of the company using WACC approach. Assume corporate tax rate is 40%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
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