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You are a conservative investor who is considering investing in XYZ , a small film company. You like the intrinsic valuation approach and want to
You are a conservative investor who is considering investing in XYZ a small film company. You like the intrinsic valuation approach and want to calculate XYZ weighted average cost of capital and then perform a discounted cash flow analysis. You note that the equity market risk premium is The risk free rate is and the tax rate is You feel that XYZ is riskier than the CAPM would indicate due to its small size and believe it has a size risk premium of You have the following information about XYZ:
Bonds: Gababa Films has two bonds as outlined below:
o Bond One: six year maturity, $ face value semiannual coupon bond with a coupon of and a yield to maturity of XYZ has of these bonds outstanding.
o Bond Two: is a coupon bond that pays annually and has nine years to maturity. The coupon rate is its yield to maturity is and its face value of $ XYZ has of these bonds outstanding.
Equity: XYZ has common shares outstanding and its stock price is $ XYZ beta is and its Shareholders Equity from the balance sheet is $mm
Unlevered Free Cash Flow as per the following table:
a Calculate XYZ weighted average cost of capital. Please show all your work and round to at least decimal points.
b Perform a discounted cash flow analysis to determine what the intrinsic value of XYZ is on a per share basis. Use the above years of unlevered free cash flow projections and the perpetuity growth rate method to calculate the companys terminal value. You believe XYZ will grow into perpetuity at a growth rate. You note that XYZ has cash of $ Please show all your work and round to at least decimal points
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