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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)

$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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