Question
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
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 firms 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 Firms equity?
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