Question
A company earned $20 million before interest and taxes on revenues of $60 million last year. Investment in fixed capital was $12 million, and depreciation
-
A company earned $20 million before interest and taxes on revenues of $60 million last year. Investment in fixed capital was $12 million, and depreciation was $8 million. Working capital investment was $3 million. The company expects EBIT, investment in fixed and working capital, depreciation, and sales to grow at 12% per year for the next five year. After five years, the growth in sales, EBIT, and working capital investment will decline to a stable 4% per year, and investments in fixed capital and depreciation will offset each other. Tax rate is 40%. Assume the WACC is 11% during the high growth stage and 8% during the stable stage What is the FCFF in Year 6? What is the terminal value in Year 5? And What is the value of the firm?
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