Question
One-Year Wonders is a firm that plans to wrap up all operations one year from now. The firm is expected to have an EBIT of
One-Year Wonders is a firm that plans to wrap up all operations one year from now. The firm is expected to have an EBIT of $100 million over the year. There will be no depreciation, no investment in physical assets, and no change in net operating working capital. The firm's overall tax rate is 30%, and its cost of debt is 8%. The company has debt of $40 million. Interest will be paid at the end of the year.
The firm's unlevered beta is 1. The risk-free rate is 4%, and the market risk premium is 6%.
Fill in the blanks. Please round all answers to two decimal places where necessary.
(a) The companies free cash flow over the year is $__________ million.
(b) The firm's return on unlevered assets is _________%
(c) The value of the unlevered firm today is $________ million.
(d) If interest tax shields can be discounted at the cost of debt, the present value of the interest tax shields is $___________ million.
(e) Using the APV model, the value of the firm today is $_________________ million
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