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