PQ5 - FINA 537 Equity Valuation WACC and APV Assignments...

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FINA 537 Equity Valuation – WACC and APV Assignments for practice (No need to submit) 1. You work for International Paper Company. Your investment banker has proposed that you purchase the Crown Paper Company, a privately owned company that makes writing paper and stationery from recycled materials. You estimate Crown Paper’s FCF is provided below. 2008 2009 2010 2011 FCF 1463 1761 2083 2435 You should assume that the risk-free rate is 3.5%, the expected market risk premium is 7% and the marginal tax rate for all companied in this problem is 40% 1a. You’ve identified a publicly traded company, the Recycled Paper Company, that is in the same business as Crown Paper. Use the information below about the Recycled Paper Company to estimate an unleveled beta for Crown Paper. Recycled Paper Company Sales ($ mill) 255 EPS($) 2.10 Dividend/share ($) 0.50 Closing stock price ($) 28.00 Shares outstanding (mill) 9.5 Book value/share ($) 10.25 ROE 20.49% Capitalization (book value) Debt 55% Equity
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PQ5 - FINA 537 Equity Valuation WACC and APV Assignments...

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