Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You estimate that the free cash flows of a firm will be $2million, $10million, $18million and $20million over the next four years. You estimate that
You estimate that the free cash flows of a firm will be $2million, $10million, $18million and $20million over the next four years. You estimate that the cash flows will grow at 4% thereafter. You have calculated the cost of equity capital = 15.5% and the pre-tax cost of debt capital = 7%. The average tax rate is 20%, and the marginal tax rate is 40%. The firm is currently operating with a D/E ratio of 1.0, and the target D/E ratio is 0.30. Calculate the value of the firm.
$178.45 million B) $160.60 million C) $247.04 million
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started