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You are a senior financial analyst of a firm based in Sydney. You have been assigned with the task of training interns who recently joined
You are a senior financial analyst of a firm based in Sydney. You have been assigned with the task of training interns who recently joined your firm on how to use the free cash flow model to estimate the value of a company. You have collected data on the following data: The company plans to invest 50% of the EBIT in capital projects each year. Depreciation in each year is expected to be 60% of EBIT. The long-term debt in 2021 was $50,000M. The company plans an annual compound growth rate of 5% for the long-term debt. The working capital of the company in 2021 was $15,000M. The company plans an annual compound growth rate of 6% for the working capital. Using the information, you have collected above, perform calculations to explain to interns as to how the following are calculated: i. Free cash flow to firm ii. Free cash to equity iii. Value of the firm according to the free cash flow to firm method iv. Value of the firm according to the free cash flow to equity method v. Estimated price of an equity share according to the free cash flow to firm method and the free cash flow to equity method
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