T

he company you

want to acquire has

the following cash flows

for the next five years.

Assum

e

that the cost of equ

ity is 1

6

.5% and the firm can borrow long term at 1

3

% (

T

ax rate

for the firm is 50%). The current

book

value of equity

is

$1

4

00

and the

book

value of debt

outstandin

g

,

which sells at par

value

,

is $

6

00

(book value of debt = market value of debt)

. The

company has 50 shares.

(

2

0

pts)

Year

FCF to Firm

1

$9

8

2

$10

8

3

$1

1

6

4

$1

2

4

5

$1

3

1

Terminal Value

$23

7

1

a.

Find company

s WACC

using book value of weights

.

(8 pts

)

b.

Calculate the firm value using corporate valuation model.

(6 pts)

c.

Calculate

the

market value of equity and the

expected

price per share.

(6 pts)