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Bethlehema Steel is a publicly traded steel company with $ 6 0 million in outstanding debt and $ 4 0 million in market value of
Bethlehema Steel is a publicly traded steel company with $ million in outstanding debt and $ million in market value of equity. Assuming the firm is correctly priced. The firms cost capital currently is and is expected to generate $ million in EBITT next year. The firm is expected to grow in stable growth at a year in perpetuity. To support the growth, the firm needs to invest of its EBITT in fixed assets and working capital. You believe if you acquire the control of the firm, you can sell idle assets for $ million and lower the cost of capital to Plan A
Suppose you consider an alternative way Plan B to deploy the $ mil proceeds from selling idle assets. Instead of paying down debt, you can redeploy the assets to more productive investments, which will increase the expected EBITT next year to $ million. As a result, the expected growth rate will increase to Required Reinvestments in Fixed assets and working capital remain at of EBITT What would be the new expected FCF of the firm?
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