20191114191843hw5.docx - ACFI 707 Homework Assignment 5 Team Due 11:00 am on 11/19 Full mark 3 points Type in your answers to the following questions

20191114191843hw5.docx - ACFI 707 Homework Assignment 5...

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ACFI 707 Homework Assignment 5 Team: Due @ 11:00 am on 11/19. Full mark: 3 points Type in your answers to the following questions. Submit one copy for your team online. Doc, docx, and pdf formats are accepted. Please remember to put your team name above. 1. At the end of 2019 (t = 0) a firm has net debt with a market value of $420 million. You forecast the firm’s FCFF for 2020-2022 to be the following and that FCFF will grow at an annual rate of 4% after 2022. The firm has a stable capital structure: 80% equity with a beta of 1.15 and 20% debt with a cost of 12%. The risk-free rate is 1.5% and the market portfolio return is 9.2%. The corporate tax rate for this firm is 30%. Year 2020 forecast 2021 forecast 2022 forecast FCFF ($ millions) 1,750 1,972 2,080 a) What is the proper discount rate to value this firm (i.e., the weighted average cost of capital)? b) What is the horizon value (continuing value) at the end of 2022 for all future FCFF starting from 2023? c) What is the total firm value at the end of 2019 (t = 0)??
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