Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Jean Jacque is evaluating Pharmet by using the FCFF valuation approach. Jean has collected the following information (currency in dollars): Pharmet has a net income
Jean Jacque is evaluating Pharmet by using the FCFF valuation approach. Jean has collected the following information (currency in dollars): Pharmet has a net income of $263 million, depreciation of $91 million, capital expenditures of $150 million, and an increase in working capital of $43 million. Pharmet will finance 40 percent of the increase in net fixed assets (capital expenditures less depreciation) and 40 percent of the increase in working capital with debt financing. Interest expenses are $136 million. The current market value of Pharmet's outstanding debt is $1,902 million. FCFF is expected to grow at 4 percent indefinitely. The tax rate is 30 percent. Pharmet is financed with 42 percent debt and the rest for equity. The before-tax cost of debt is 9 percent, and the before-tax cost of equity is 16 percent. Phaneuf has 10 million outstanding shares. Your task is to estimate the total value of the equity. Write your answer in decimal form and round it to two decimal places. Your answer will be in millions, for example - if you get 234.24, you can write 234.24 - but in fact, it is 234.24 "millions
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