UGBA103_pb_set9

UGBA103_pb_set9 - Problem Set #9 GSI: Florent Rouxelin...

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Problem Set #9 GSI: Florent Rouxelin 18-2. Suppose Caterpillar, Inc., has 665 million shares outstanding with a share price of $74.77, and $25 billion in debt. If in three years, Caterpillar has 700 million shares outstanding trading for $83 per share, how much debt will Caterpillar have if it maintains a constant debt-equity ratio? 18-10. Consider Lucent’s project in Problem 5. a. What is the free cash flow to equity for this project? b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? 18-16. Tybo Corporation adjusts its debt so that its interest expenses are 20% of its free cash flow. Tybo is considering an expansion that will generate free cash flows of $2.5 million this year and is expected to grow at a rate of 4% per year from then on. Suppose Tybo’s marginal corporate tax rate is 40%. a. If the unlevered cost of capital for this expansion is 10%, what is its unlevered value? b. What is the levered value of the expansion? c.
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UGBA103_pb_set9 - Problem Set #9 GSI: Florent Rouxelin...

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