{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# FI516_WEEK_6_HOMEWORK_ANSWER_KEY - FI516 WEEK 6 HOMEWORK...

This preview shows pages 1–3. Sign up to view the full content.

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 1 = TS 2 = TS 3 = Interest x T = \$1,500,000(0.40) = \$600,000, and TS 4 = \$1,472,000 (0.40) = \$588,800. Tax shield horizon value = TS 4 (1+g)/(r sU -g) = 0.5888 (1.05)/(0.1178-0.05) = 9.12 Value of tax shields = = \$7.67 million.

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

View Full Document
Unlevered horizon value = FCF 4 (1+g)/(r sU -g) = 3.57(1.05)/(0.1178-0.05) = 55.29 Unlevered Vops = = \$44.69 Value of operations = unlevered Vops + value of tax shields = \$44.69 + \$7.67 = \$52.36 million
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 4

FI516_WEEK_6_HOMEWORK_ANSWER_KEY - FI516 WEEK 6 HOMEWORK...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online