Question
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) | $30.5 | Firm free cash flow (or Cash Flow from Assets) |
g | 2% pa | Growth rate of OFCF |
rD | 3% pa | Cost of debt |
rEL | 6% pa | Cost of levered equity |
D/VL | 35% pa | Debt to assets ratio, where the asset value includes tax shields |
tc | 30% | Corporate tax rate |
The current value of debt is
a.
446.63
b.
672.03
c.
1157.5
d.
405.12
e.
361.86
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