Question
Suppose that you have following information about the company: - The company has 2 billion shares outstanding - The market value of its debt is
Suppose that you have following information about the company:
- The company has 2 billion shares outstanding
- The market value of its debt is 4 billion
- The free cash flow to the firm is currently 1.2 billion
- The equity beta is 0.9; the equity (market) risk premium is 7.5%; the risk-free rate is 3.5%
- The before-tax cost of debt is 7%
- The tax rate is 20%
- The company is currently and in the future financed 25% with debt
- The growth rate of the free cash flow to the firm is 4%
Calculate the following:
a) Weighted average cost of capital (WACC)
b) Value of the firm
c) Total market value of equity and value per share
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started