FI516_WEEK_6_HOMEWORK_ANSWER_KEY

FI516_WEEK_6_HOMEWORK_ANSWER_KEY - FI516 WEEK 6 HOMEWORK...

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FI516 – WEEK 6 – HOMEWORK ANSWER KEY Problem 21 – 1 21-1 FCF 1 = 2.00(1.05) = $2.1 million; g = 5%; b = 1.4; r RF = 5%; RP M = 6%; w d = 30%; T = 40%; r d = 8% V ops = ? P 0 = ? r sL = r RF + RP M (b) = 5% + 6%(1.4) = 13.4%. WACC = w d r d (1-T) + w s r s = 0.30(8%)(0.60) + 0.70(13.4%) = 10.82% V ops = = = $36.08 million V S = V ops – debt = 36.08 – 10.82 = $25.26 million Price= $25.26 million / 1 million shares = $25.26 / share. Problem 21 – 2 21-2 FCF 1 = $2.5 million, FCF 2 = $2.9 million, FCF 3 = $3.4 million, and FCF 4 = $3.57 million; Interest in the 4th year = $1.472 million. g = 5%; b = 1.4; r RF = 5%; RP M = 6%; w d = 30%; T = 40%; r d = 8% V ops = ? P 0 = ? r sU = w d r d + w s r sL Note: r sL was calculated in problem 1 to be 13.4% = 0.30(8%) + 0.70(13.4%) = 11.78% 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, although we don’t need WACC to apply the APV. Tax shields are TS
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This note was uploaded on 10/13/2011 for the course MAFM FI516 taught by Professor Anthonycriniti during the Spring '10 term at Keller Graduate School of Management.

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FI516_WEEK_6_HOMEWORK_ANSWER_KEY - FI516 WEEK 6 HOMEWORK...

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