04 ModelHW4 - 26-1 FCF1 = 2.00(1.05) = $2.1 million; g =...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 26-1 FCF1 = 2.00(1.05) = $2.1 million; g = 5%; b = 1.4; rRF = 5%; RPM = 6%; wd = 30%; T = 40%; rd = 8% Vops = ? P0 = ? rs = = = WACC = = = Vops = rRF + RPM(b) 5% + 6%(1.4) 13.4%. wdrd(1-T) + wsrs 0.30(8%)(0.60) + 0.70(13.4%) 10.82% FCF0(1 + g) WACC - g $2.1 = 0.1082 - 0.05 $36.08 million Vops debt 36.08 10.82 = $25.26 million 25.26 million / 1 million shares $25.26 / share. = = = Price = = VS 26-2 FCF1 = $2.5 million, FCF2 = $2.9 million and FCF3 = $3.4 million; g = 5%; b = 1.4; rRF = 5%; RPM = 6%; wd = 30%; T = 40%; rd = 8% Vops = ? P0 = ? WACC was calculated in problem 1 to be 10.82%. Since the horizon capital structure is the same as in problem 1, the WACC is the same. Horizon Value3 = FCF3(1+g)/(WACC g) = 3.4 (1.05)/(.1082 0.05) = $61.34 million Tax shields in years 1 through 3 are: TS1 = TS2 = TS3 = Interest x T = 1,500,000 x 0.40 = 600,000 FCF + Tax Shield + Horizon Value Year 1: 2.5 million + 600,000 = Year 2: 2.9 million + 600,000 = Year 3: 3.4 million + 600,000 + = 3.1 million 3.5 million 61.34 million = 65.34 million The unlevered cost of equity based on the pre-merger required rate of return and pre-merger capital structure is: rsU = wdrd + wsrsL Note: rs was calculated in problem 1 to be 13.4% = 0.30(8%) + 0.70(13.4%) = 11.78% Mini Case: 25- 1 The present value of the FCFs, the tax shields, and the horizon value at the unlevered cost of equity is: Vops = 3.1 3.5 65.34 + + 2 1.1178 (1.1178) (1.1178)3 = $52.36 million Equity value to Harrison = Vops Debt = 52.36 million - 10.82 million = 41.54 million or $41.54 per share since there are 1 million shares outstanding. Mini Case: 25- 2 ...
View Full Document

This note was uploaded on 05/12/2010 for the course BUSINESS BS525 taught by Professor Matthews during the Winter '10 term at Drexel.

Page1 / 2

04 ModelHW4 - 26-1 FCF1 = 2.00(1.05) = $2.1 million; g =...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online