Exercise 3. Cagiati Enterprises has FCFF of 700 million Swiss francs CHF) and FCFE of CHF620 million. Cagiati's before-tax cost of debt is 5.7 percent, and its required rate of return for equity is 11.8 percent. The company expects a target capital structure consisting of 20 percent debt financing and 80 percent equity financing. The tax rate is 33.33 percent, and FCFF is expected to grow forever at 5.0 percent. Cagiati Enterprises has debt outstanding with a market value of CHF2.2 billion and has 200 million outstanding common shares. (a) What is Cagiati's weighted average cost of capital? (b) What is the value of Cagiati's equity using the FCFF valuation approach? (C) What is the value per share using this FCFF approach? Solution