Question
Caballos, Inc., has a debt to capital ratio of 30%, a beta of 1.5 and a pre-tax cost of debt of 7.4%. The firm had
Caballos, Inc., has a debt to capital ratio of 30%, a beta of 1.5 and a pre-tax cost of debt of 7.4%. The firm had earnings before interest and taxes of $ 591 million for the last fiscal year, after depreciation charges of $ 307 million. The firm had capital expenditures of $ 371 million, and non-cash working capital increased by $ 50 million. The firm also had a book value of capital of $ 2.03 billion at the beginning of the last fiscal year. (The treasury bond rate is 4.91 %, the market risk premium is 6.22 % and the firm has a tax rate of 40 %). Assume that the firm is in stable growth, and that the return on capital and reinvestment rates for the last fiscal year can be sustained forever. Estimate the Value of the Firm. Answer format is the 0 decimal places (1234).
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