Question
The company you want to acquire has the following cash flows for the next five years. Assume that the cost of equity is 15.5% and
The company you want to acquire has the following cash flows for the next five years. Assume that the cost of equity is 15.5% and the firm can borrow long term at 12% (Tax rate for the firm is 50%). The current book value of equity is $1300 and the book value of debt outstanding, which sells at par value, is $700 (book value of debt = market value of debt). The company has 50 shares. Year FCF to Firm 1 $97 2 $107 3 $115 4 $123 5 $130 Terminal Value $2370 a. Find companys WACC using book value of weights. b. Calculate the firm value using corporate valuation model. c. Calculate the market value of equity and the expected price per share.
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