The PPT attached shows formula for the Question asked in the attached word document with the assignment instructions.

Thank you!

Discussion board problem for Chapter 17 You are a MNC looking at buying a company in your country of choice. You have determined that the free cash flow is $150 Million growing at 9% each year. How much would you pay for this company? For your MNC The Tax rate is 34% The cost of debt 10% Risk free rate 3% Market return 8% Beta 1.1 Perpetual growth 2.5% 50% debt 50% equity For the company you are looking at The Tax rate is determined by research. The cost of debt is 14% Risk free rate determined by research on your country. When using CAPM the 10 year treasury is preferred Market return is determined by research. A good proxy for your country should be the average market return of an index in your country similar to the S&P 500 over the last 20 years. The Beta 1.3 50% debt 50% equity Perpetual growth 2.5% To calculate the cost of equity Rf + B * (MR - Rf), CAPM How to calculate the WACC The WACC= E/V*Ce + D/V *Cd*(1-T) Symbol Descriptions How to get it Ce The cost of equity Calculated (using CAPM) Cd The cost of debt Company's borrowing rate (Corp bonds) E The market value of the firm's equity From the 10-K and In this example E/V=50% Market price of the stock and shares outstanding form the Balance Sheet D From the 10-K (Balance Sheet) V market value of the firm's debt (longterm interest bearing debt) In this example D/V=50% D+E T Corporate tax rate 10-K / Estimate This is also the enterprise value How to calculate the value of your company The value of your company is the sum of all the cash flows plus the terminal value discounted by the WACC. The Perpetuity Growth approach assumes that free cash flow will continue to grow at a constant rate into perpetuity. The Terminal Value can be estimated using the formula below. TV FCF(final foreca st year) * (1 g) W ACC - g FCF FCF1 FCF2 3 FCF 4 FCF 5 TV PV0 (1WACC 1 2 3 4 5 ) (1WACC ) (1WACC ) (1WACC ) (1WACC ) (1WACC ) 5 You are a MNC looking at buying a company in your country of choice. You have determined that the free cash flow is $150 Million growing at 9% each year. How much would you pay for this company? You will have to use the Capital Asset Pricing Model (CAPM), determine the Weighted Average Cost of Capital (WACC) and then discount the free cash flows that you will determine after applying the growth. THIS MUST BE DONE IN AN EXCEL FILE! WORD DOCUMENTS WON'T RECEIVE CREDIT! Please go to PPT file from course documents for the details and how to solve this problem. It is under Chapter 17