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Chipotle expects to earn a free cash flow of $500 in one year; further, these cash flows are expected to grow at a rate of
Chipotle expects to earn a free cash flow of $500 in one year; further, these cash flows are expected to grow at a rate of 3% forever. The firms unlevered cost of capital is 15%. Chipotle also has debt outstanding with a face value of $1000 and a maturity of 1 year, with an annual interest rate of 10%. The discount rate for its debt (i.e. yield-to-maturity) is also 10%. After the debt matures in 1 year, Chipotle will not issue more debt. What is the value of Chipotle if its tax rate is 40%?
A. | 4166.67 | |
B. | 4201.45 | |
C. | 4202.01 | |
D. | 4203.03 |
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