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ABC Corp is a manufacturing company with the following information: 1 . Financial Statements: Net Income: $ 1 0 million Depreciation: $ 5 million Capital
ABC Corp is a manufacturing company with the following information:
Financial Statements:
Net Income: $ million
Depreciation: $ million
Capital Expenditures CapEx: $ million
Changes in Working Capital: $ million increase
Balance Sheet:
Total Debt: $ million longterm debt
Total Equity: $ million
Total Assets: $ million
Market Information:
RiskFree Rate:
Market Risk Premium:
Comparable Companies' Unlevered Beta: average of industry peers
Tax Rate:
Current Stock Price: $ per share
Number of Shares Outstanding: million
Assumptions:
Terminal Growth Rate:
Longterm WACC: less than the initial WACC
Questions:
a Calculate the Free Cash Flow to the Firm FCFF for ABC Corp for the next five years.
b Determine the Cost of Equity using the Capital Asset Pricing Model CAPM with unlevered beta.
c Calculate the Levered Beta for ABC Corp by using the industry average unlevered beta and the company's capital structure.
d Calculate the Cost of Equity using the Capital Asset Pricing Model CAPM with the calculated levered beta.
e Calculate the Weighted Average Cost of Capital WACC for ABC Corp using the levered beta.
f Use the DCF valuation formula to estimate the intrinsic value per share for ABC Corp for the next five years, considering the calculated levered beta.
g Add the terminal value to the DCF valuation using the Gordon Growth Model with a terminal growth rate of
h Calculate the present value of the terminal value using the longterm WACC less than the initial WACC
i Sum the present values of the FCFF and terminal value to get the intrinsic value per share.
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