Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pinder Ltd wants to estimate the value of Value Co using a DCF analysis. Last year, Value Co's revenues were $1,000. For the next five

image text in transcribed

Pinder Ltd wants to estimate the value of Value Co using a DCF analysis. Last year, Value Co's revenues were $1,000. For the next five years, Pinder Ltd makes the following projects about Value Co. Value Co's sales are expected to grow by $100 each year. Value Co's EBIT margin is expected to remain constant at 40%. Value Co's depreciation is expected to be 10% of sales each year. The capital expenditures are expected to be 15% of sales for the next three years then 10% thereafter. There are no expected changes in Value Co's working capital. Value Co's free cash flows after this five year projection period is expected to grow at 1% per annum in perpetuity. The corporate tax rate is 30%. The market value of Value Co's debt is $600 and the market value of Value Co's equity is $3000. The cost of debt is 6%, the risk-free rate is 1%, the market risk premium is 10%, and the unlevered beta for comparable firms is 0.8. Based only on the information above, what is the equity value of Value Co, based on the DCF? (round to the nearest two decimal places) $4010.36 None of the above. $9935.13 $5603.13 $7530.71

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Chronic Regulatory Focus And Financial Decision Making Asset And Portfolio Allocation

Authors: Navin Kumar

1st Edition

9812876936, 978-9812876935

More Books

Students also viewed these Finance questions

Question

L A -r- P[N]

Answered: 1 week ago