Question
What is the Free Cash Flow to the Firm for Microsoft, which has: Cash Flow from Operations = $10,000m Capital Expenditure = $2,000m Interest Expense
What is the Free Cash Flow to the Firm for Microsoft, which has:
Cash Flow from Operations = $10,000m
Capital Expenditure = $2,000m
Interest Expense = $500m
Corporation Tax = 25%
Cash Flow from Operations = $10,000m
Capital Expenditure = $2,000m
Interest Expense = $500m
Corporation Tax = 25%
Free cash flow to firm = ocf + (i*(1-T)) ce
= 10,000 + (500* (1-0.25)) 2000
=8000 + (500* (1-0.25)) 2000
=8000 + (500* 0.75)
=8000 + 375
$8375m
The cash flow to the firm is $8375m
Find the Enterprise Value of MNO Corporation by modelling it as a perpetuity with growth.
Free Cash Flow to Firm = $3,000m
Growth in FCFF = 4% every year
WACC = 8% every year
Solution :
Value of a firm is the sum of discounted cash flows.
Free cash flow to firm, FCFF = $3,000m
Growth in FCFF, g = 4%
WACC, k = 8%
Formula is
Enterprise value = FCFF / (k-g)
Explanation for step 1:
The inputs are listed and the formula for calculation is provided
Enterprise Value: FCFF/ (k-g) = $75,000
Final Answer = Enterprise Value of MNO corporation is $ 75,000m
Once you have calculated Enterprise Value, use the following information to calculate the Equity value, and price per share.
Cash on Balance Sheet = $5,000m
Total Debt = $12,000m
Number of Shares = 2,000m
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