Assume the market risk premium is 5.5%, the risk free interest rate is 2% and the corporate
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Question:
Assume the market risk premium is 5.5%, the risk free interest rate is 2% and the corporate tax rate is 0.20.
The company reported net income of $50 million for the most recent fiscal year. They have $1 billion in debt and paid $100 million in interest expense in the most recent financial year. The firm reported depreciation expense of $100 million in the current fiscal year, and capital expenditures were 200% of depreciation. The firm has a WACC of 11% and a constant growth rate of 4% in perpetuity.
a.Estimate the company's value
b.Estimate the value of the company's equity.
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