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The valuation of Hansel Limited has been done by an investment analyst. Based on an expected free cash flow of 54 lakhs for the following
The valuation of Hansel Limited has been done by an investment analyst. Based on an expected free cash flow of 54 lakhs for the following year and an expected growth rate of 9 percent, the analyst has estimated the value of Hansel Limited to be 1800 lakhs. However, he committed a mistake of using the book values of debt and equity. The book value weights employed by the analyst are not known, but you know that Hansel Limited has a cost of equity of 20 percent and post tax cost of debt of 10 percent. The value of equity is thrice its book value, whereas the market value of its debt is nine-tenths of its book value. What is the correct value of Hansel Ltd
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