Problem

Start with the partial model in the file Ch21 P08 Build a Model.xlsx on the textbooks Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions.

a. Calculate the estimated horizon value of unlevered operations at Year 4 (i.e., immediately after the Year-4 free cash flow).

b. Calculate the current value of unlevered operations.

c. Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash flow).

d. Calculate the current value of the tax shield.

e. Calculate the current total value.

INPUTS (In Millions) INPUTS (In Millions)