ch10sol - CHAPTER 10 FROM EARNINGS TO CASH FLOWS Problem 1...

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CHAPTER 10 FROM EARNINGS TO CASH FLOWS Problem 1 a. Effective tax rate = 0.25! 12.5/50 After-tax operating income = 37.5 1 2 3 Terminal year EBIT (1-t) $41.25 $45.38 $49.91 $52.41 Reinvestment $16.50 $18.15 $19.97 $20.96 FCFF $24.75 $27.23 $29.95 $31.44 Terminal value $524.08 Present Value $22.30 $22.10 $405.10 Firm Value $449.49 b. Marginal tax rate rate = 0.35 After-tax operating income = 32.5 1 2 3 Terminal year EBIT (1-t) $35.75 $39.33 $43.26 $45.42 Reinvestment $16.50 $18.15 $19.97 $20.96 FCFF $19.25 $21.18 $23.29 $24.46 Terminal value $407.62 Present Value $17.34 $17.19 $315.08 Firm Value $349.61 b. Marginal tax rate rate = 0.25 After-tax operating income = 37.5 1 2 3 Terminal year EBIT (1-t) $41.25 $45.38 $49.91 $45.42 Reinvestment $16.50 $18.15 $19.97 $20.96 FCFF $24.75 $27.23 $29.95 $24.46 Terminal value $407.62 Present Value $22.30 $22.10 $319.94 Firm Value $364.34 Problem 2 Year R&D Current $50.00 $50.00
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Dividend Discount Models 2 -1
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ch10sol - CHAPTER 10 FROM EARNINGS TO CASH FLOWS Problem 1...

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