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Compute Magna Corps Free Cash Flow assuming the following: Operating income: $400 million Depreciation & amortization: $30 million Interest expense: $40 million Capital expenditures: 120%
- Compute Magna Corps Free Cash Flow assuming the following:
Operating income: $400 million
Depreciation & amortization: $30 million
Interest expense: $40 million
Capital expenditures: 120% of depreciation & amortization
Income tax rate: 35%
Dividends: $20 million
Increase in accounts receivable: $10 million
Decrease in inventory: $5 million
Decrease in accounts payable: $15 million
b) Using a 2% perpetuity growth model and a WACC of 10%, what is the expected value of Magna
Corp?
c) Using the Dividend Discount Model and the same assumptions as in (b), propose a value for Magna
Corp.
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