Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

plz help 1. Random Firm Inc. expects to make earnings before interest and taxes (EBIT) of $230,000, $270,000, and $295,000 in each of the next

plz help
image text in transcribed
1. Random Firm Inc. expects to make earnings before interest and taxes (EBIT) of $230,000, $270,000, and $295,000 in each of the next three years. Depreciation is estimated to be $55,000,$70,000, and $65,000 in each of the next three years. Capital expenditures are estimated to be $70,000,$90,000, and $80,000 in each of the next three years. Incremental increases in working capital requirements are estimated to be $50,000,$35,000, and $10,000 in each of the next three years. Free cash flows beyond year three are estimated to grow at an annual rate of 3.5%. The firm's WACC is 9.2%, their tax rate is 21%, and the market value of their debt is $600,000. Using the DCF approach, what is the value of Random Fi.m's equity? 2. If interest rates fall, what would happen to share prices in the stock market? (Assume nothing else changes in the macroeconomy)

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

Personal Finance

Authors: Jeff Madura

4th Edition

0136117007, 9780136117001

More Books

Students also viewed these Finance questions

Question

=+1. Rating is the same [(G,G), (B,B), (S,S)].

Answered: 1 week ago