1. You are going to value Lauryns Doll Co. using the FCF Model. After consulting various sources, you find that Lauryn has a reported equity beta of 1.4, a debt-to-equity ratio of .3, and a tax rate of 30 percent. Based on this information, what is Lauryns asset beta?
2. Using your answer to the previous question, calculate the appropriate discount rate assuming a risk-free rate of 4 percent and a market risk premium of 7 percent.
3. Lauryns Doll Co. had EBIT last year of $40 million, which is net of a depreciation expense of $4 million. In addition, Lauryn made $5 million in capital expenditures and increased net working capital by $3 million. Using the information from Problem 1, what is Lauryns FCF for the year?
4. Using your answers from Questions 1 through 3, value Lauryns Doll Co. assuming her FCF is expected to grow at a rate of 3 percent into perpetuity. Is this value the value of the equity?