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4) You have been asked to estimate the expected free cash flow to the firm next year of Lymon Enterprises, a beverage company. The firm
4) | You have been asked to estimate the expected free cash flow to the firm next year of | ||||||||
Lymon Enterprises, a beverage company. | |||||||||
The firm has reported the following: | |||||||||
The earnings before interest and taxes in the most recent year amounted to $ 150 million. | |||||||||
The tax rate of the firm is 40%. | |||||||||
The firm had operating lease payments of $ 50 million in the most recent year, and | |||||||||
has commitments to make similar payments each year for the next 10 years. | |||||||||
The pre-tax cost of debt for the firm is 8%. | |||||||||
The book value of equity is $ 400 million and the book value of debt | |||||||||
(not including operating leases) is $ 100 million. | |||||||||
The expected growth rate in the earnings before interest and taxes next year is 10% | |||||||||
and the Return on Capital will remain unchanged from this years level. | |||||||||
Estimate the adjusted (for operating leases) return on capital for the firm. |
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