Question
The MoMi Corporations income before interest, depreciation and taxes, is expected to be $1.5 million, and it expects that this will grow by 5% per
The MoMi Corporations income before interest, depreciation and taxes, is expected to be $1.5 million, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 15% of pretax cash flow each year. The tax rate is 30%. Depreciation is expected to be $210,000 and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $3 million outstanding.
A).Use the free cash flow approach to calculate the value of the firm and the firms equity
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