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Use the below information to value the debt in a levered company with annual perpetual cash flows from assets that grow. The next cash flow

Use the below information to value the debt in a levered company with annual perpetual cash flows from assets that grow. The next cash flow will be generated in one year from now.

Data on a Levered Firm with Perpetual Cash Flows

Item abbreviation

Value

Item full name

FFCF (millions)

$10.6

Firm free cash flow (or Cash Flow from Assets)

g

2% pa

Growth rate of OFCF

rD

3% pa

Cost of debt

rEL

7% pa

Cost of levered equity

D/VL

40% pa

Debt to assets ratio, where the asset value includes tax shields

tc

30%

Corporate tax rate

The current value of debt is

a.

348.68

b.

124.71

c.

145.63

d.

187.06

e.

139.47

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