Question
The Alchemy Gold Co. earned $20 million before interest and taxes on revenues of $60 million last year. Capital expenditure was $12 million, and depreciation
The Alchemy Gold Co. earned $20 million before interest and taxes on revenues of $60 million last year. Capital expenditure was $12 million, and depreciation was $8 million. The change in operating working capital is $3 million. Alchemy expects earnings before interest and tax, capital expenditure, operating working capital, depreciation, and sales to grow at 12% for the next five years. After five years, the growth in sales EBIT, and working capital, will decline to stable 4% per year, and capital expenditure and deprecation will offset each other. Alchemy tax rate is 40%. Assume a weighted average cost of capital (WACC) is 11% during the high growth stage and 8% during the stable stage. a) Calculate the FCFF in year 6. b) Calculate the terminal value in year 5. c) Calculate the value of the firm.
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