Hello,<\/p>
<\/p>
How would you answer this question? I am stuck.<\/p>
<\/p>
Nick Frost would like to value Automaton, Inc. using the discounted cash flow (DCF) method.<\/p>
He forecasts Free Cash Flows (FCFs) of $135 million, $145 million, $146 million, respectively for years 1, 2, and 3<\/strong>.After year 3, he assumes FCFs will increase by 2 percent to perpetuity.<\/p> Nick gathers the information below (his \"input variables\") to compute Automaton's cost of equity, debt, and enterprise value.<\/p> Cost of Equity<\/strong><\/p> Risk-Free-Rate = 3 percent<\/p> Beta = 1.03<\/p> Return of Market Portfolio (S&P 500) = 7 percent<\/p> <\/p> Debt Financing <\/strong><\/p> Debt to Equity Ratio = 45 percent<\/p> Market Value of Zero-Coupon Bonds = $100 million or 75 percent of par value<\/p> Maturity of Zero-Coupon Bonds = 15 years<\/p> Tax Rate = 35%<\/p> <\/p> What is Automaton's Enterprise Value?Assume a WACC of 8.9% and constant growth rate of 2 percent to perpetuity and Nick's FCF forecasts.<\/p>",
"transcribed_text": "",
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"question_posted": "2024-05-19 15:15:32",
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