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A firm is expected to have after-tax cash flow in the coming year of $8 million, and this cash flow is expected to grow at
A firm is expected to have after-tax cash flow in the coming year of $8 million, and this cash flow is expected to grow at a rate of 3% per year thereafter. This firm ( called "Flagstaff") has an equity cost of capital of 13%, a debt cost of capital of 7%, and it is in the 35% corporate tax bracket. Warm up exercise: Please answer using space below, in your words: How does WACC method work? How does WACC account for debt tax shield? How does the firm decide on the optimal mix of debt and equity? Using your own notation, type or draw a formula for the NPV of the dividends for the firm that has a fast-growth stage, followed by a constant stream of expected dividends, followed by a liquidating dividend. State your notation, give a numerical example
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