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Q4) Calculate the i) present value of the equity and ii) present value of the firm using the relevant cash flows and appropriate discount rates.
Q4) Calculate the i) present value of the equity and ii) present value of the firm using the relevant cash flows and appropriate discount rates. Current FCFE is $10 and current FCFF is $15. The growth rate for FCFE is 15% and FCFF is 10% respectively for three years. The growth rate is 20% beyond three years for both the cashflows. The firm's tax rate is 10%, discount rate is 10%, cost of debt is 10%, and the cost of equity is 15%. The firm is financed with 50% debt and 50% equity. (10 marks) Year 0 1 2 3 Free cash flow to equity (FCFE) $10 ? Free cash flow to firm (FCFF) $15 ? ? ? ? ? Q4) Calculate the i) present value of the equity and ii) present value of the firm using the relevant cash flows and appropriate discount rates. Current FCFE is $10 and current FCFF is $15. The growth rate for FCFE is 15% and FCFF is 10% respectively for three years. The growth rate is 20% beyond three years for both the cashflows. The firm's tax rate is 10%, discount rate is 10%, cost of debt is 10%, and the cost of equity is 15%. The firm is financed with 50% debt and 50% equity. (10 marks) Year 0 1 2 3 Free cash flow to equity (FCFE) $10 ? Free cash flow to firm (FCFF) $15
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