Question
Krisko Industries generated FCFF of $430,000 last year. The firm is expected to grow at a rate of 15% for the next two years. After
Krisko Industries generated FCFF of $430,000 last year. The firm is expected to grow at a rate of 15% for the next two years. After this high growth period, the firm is expected to grow at a rate of 5% for the forseeable future. The following data applies to Krisko:
Market value of debt = $3,000,000
Book value of debt = $2,800,000
Pre-tax cost of debt = 6%
Bingo's beta = 1.4
Risk-free rate - 3%
Market risk premium = 8%
Shares outstanding = 500,000
Current share price = $10
Book value of equity = $2,000,000
Tax rate = 40%
Using an FCFF approach, which of the following is closest to the value of the firm's equity?
| About $3,720,000 About $5,740,000 About $7,320,000 About $9,660,000 |
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Asset Allocation From Theory To Practice And Beyond
Authors: Mark P. Kritzman, William Kinlaw, David Turkington, Harry M. Markowitz
1st Edition
1119817714, 978-1119817710
