Question
Schwarzentraub Corporation's expected free cash flow for the year is $350,000; in the future, free cash flow is expected to grow at a rate of
Schwarzentraub Corporation's expected free cash flow for the year is $350,000; in the future, free cash flow is expected to grow at a rate of 10%. The company currently has no debt, and its cost of equity is 14%. Its tax rate is 25%. Suppose the firm issues $6 million debt at a rate of 9%. Use the compressed adjusted value approach to answer the following questions. Do not round intermediate calculations. Find VU. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million Find VL. Use the APV model that allows for growth. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million Find rsL. Use the APV model that allows for growth. Round your answer to one decimal place. % Start with the value of the unlevered firm, VU from part a. Use the MM model (with taxes but with zero growth) to calculate VL. (Hint: This answer will differ from that in part b due to differences in growth assumptions.) Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million Start with the value of the unlevered firm, VU from part a. Use the MM model (with taxes but with zero growth) to calculate rsL. (Hint: This answer will differ from that in part b due to differences in growth assumptions.) Round your answer to one decimal place. %
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