You work at the equity research department of a large investment bank and your task is to determine the value of the company Example.com using the WACC method. You have the following estimates for Example.coms yearly financials for the year 2018.

a. Net Income is 300 million.

b. The corporate tax rate is 25%.

c. The interest expense is 100 million. d. Depreciation is 150 million.

e. Capital expenditure is 200 million.

f. Net working capital in December 2017 is equal to 350 million and net working capital in December

2018 is equal to 400 million.

g. Total unlevered free cash flows are expected to grow at a rate of 30% per year until December 2020, and then the growth rate will drop to 4% per year forever.

As Example.com is not public yet, you have to estimate its cost of capital using a comparable firm

Model.com. You have the following information for the comparable:

The debt-to-equity ratio (D/E) of Model.com is expected to remain constant at 0.5 and its debt beta is zero.

The equity beta of Model.com is 1.2.

Assume the CAPM relation holds for equity capital (not necessarily for debt), the risk-free rate is 4%, and the expected market risk premium is 6%.

The debt-to-equity ratio (D/E) of Example.com is expected to remain constant at 1, its debt beta is zero, and its (pre-tax) cost of debt is 4.8%.

a. (7 marks) Forecast the unlevered free cash flows of Example.com in 2019 and 2020.

b. (8 marks) Estimate the after-tax weighted average cost of capital (WACC) for Example.com. c. (5 marks) What is the enterprise value of Example.com at the beginning of 2019? You may

assume that all cash flows occur at the end of each year.

You work at the equity research department of a large investment bank and your task is to determine the value of the company Example.com using the WACC method. You have the following estimates for Example.coms yearly financials for the year 2018.

a. Net Income is 300 million.

b. The corporate tax rate is 25%.

c. The interest expense is 100 million. d. Depreciation is 150 million.

e. Capital expenditure is 200 million.

f. Net working capital in December 2017 is equal to 350 million and net working capital in December

2018 is equal to 400 million.

g. Total unlevered free cash flows are expected to grow at a rate of 30% per year until December 2020, and then the growth rate will drop to 4% per year forever.

As Example.com is not public yet, you have to estimate its cost of capital using a comparable firm

Model.com. You have the following information for the comparable:

The debt-to-equity ratio (D/E) of Model.com is expected to remain constant at 0.5 and its debt beta is zero.

The equity beta of Model.com is 1.2.

Assume the CAPM relation holds for equity capital (not necessarily for debt), the risk-free rate is 4%, and the expected market risk premium is 6%.

The debt-to-equity ratio (D/E) of Example.com is expected to remain constant at 1, its debt beta is zero, and its (pre-tax) cost of debt is 4.8%.

a. (7 marks) Forecast the unlevered free cash flows of Example.com in 2019 and 2020.

b. (8 marks) Estimate the after-tax weighted average cost of capital (WACC) for Example.com. c. (5 marks) What is the enterprise value of Example.com at the beginning of 2019? You may

assume that all cash flows occur at the end of each year.