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Suppose a firm's stock has a beta of 1.3, and there are 2 million shares outstanding. The firm has a policy that its net
Suppose a firm's stock has a beta of 1.3, and there are 2 million shares outstanding. The firm has a policy that its net debt is set to be 33% of its enterprise value. Free Cash Flow one year from now is expected to be $9 million. After that, FCF is expected to grow 4% per year forever. The firm's debt has a pre-tax expected return of 6%. The firm's tax rate is 25%. The risk-free rate is 4%, and the market risk premium is 6%. The firm has $2 million of excess cash. A. Use the CAPM model to estimate the expected return on equity. Express your answer as a percentage, rounded to two decimal places: 11.8% B. Compute the WACC. Express your answer as a percentage, rounded to two decimal places: % C. Calculate the Enterprise Value of the firm, using a growing perpetuity model. Express your answer in millions of dollars, rounded to two decimal places (e.g., 30.52 million): D. Calculate the total Firm Value of the company (including excess cash) Express your answer in millions of dollars, rounded to two decimal places (e.g., 30.52 million): E. Using the net debt-to-EV percentage, calculate the Total Debt Value of the firm. Hint: you will need to calculate Net Debt first and then calculate Total Debt. Express your answer in millions of dollars, rounded to two decimal places (e.g., 30.52 million): F. Calculate the equity value per share of the firm's stock. Hint: Use the equity-to-EV ratio (which is 1 - net debt-to-EV) to calculate total equity, and then divide by the shares outstanding. Express your answer in dollars, rounded to the nearest cent (e.g., $100.15 per share):
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