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Valuation of levered firm: 1. Explain APV, FTE and WACC methods of valuation. Which method gives best valuation if level of debt is constant over the life of the project? 2. Sigma Oy's current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = 25%). Current book value per share is 35. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and company increases the payout ratio to 60%. The company does not plan to issue or buyback shares. The cost of capital is 9.5%. What is per-share value of Sigma Oy Valuation of levered firm: 1. Explain APV, FTE and WACC methods of valuation. Which method gives best valuation if level of debt is constant over the life of the project? 2. Sigma Oy's current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = 25%). Current book value per share is 35. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and company increases the payout ratio to 60%. The company does not plan to issue or buyback shares. The cost of capital is 9.5%. What is per-share value of Sigma Oy