Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please help me find the terminal value? You are trying to value a private company. The company has 5 million of debt and 4 million
Please help me find the terminal value?
You are trying to value a private company. The company has 5 million of debt and 4 million of book equity. The ratio of market value to book value for similar firms is 2. You decide to use this ratio to estimate the market value of equity as the input for the weights in WACC calculation. The average beta for publicly traded firms in the same industry is 2, and the average debt-to-equity ratio for public firms in this industry is 0.4. The corporate tax rate is 40%. The risk free rate is 6% and the market risk premium is 5 .5%. The interest rate of the debt is 10%. Here is the FCFF model for valuing the business: Year EBIT (EBIT grows at 15% for the first S2.30 S2.65 S3.04 S3.50 S4.02 $4.22 five years and 5% thereafter.) EBIT (1-Tax Rate) Less S1.38 S1.59 S1.82 S2.10 S2.4S2.53 (Cap. Expenditures-Depreciation) grows S.115 S.132 S.152 S.175 S.201 0.00 at same 15% annual rate as revenue for 5 years and are offsetting thereafter) Equals FCF Assuming after 5 years, the growth rate is 5% forever 5 What is the terminal value of the firm at the end of year 5 (in millions)? Valuing the business using the FCFF model: Year EBIT (EBIT grows at 15% for the first S2.30 S2.65 S3.04 S3.50 S4.02 2 3 4 S4.22 five years and 5% thereafter.) EBIT (1-Tax Rate) Less S1.38 S1.59 S1.82 S2.10 S2.41 S2.53 (Cap. Expenditures-Depreciation) grows S.115 S.132 S.152 S.175 S.201 S0.00 at same 15% annual rate as revenue for 5 years and are offsetting thereafter) Equals Free Cash Flow to the Firm $1.26 $1.46 $1.67 $1.93 $2.21 $2.53Step 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