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Firm Valuation POW - for blackboard

# Firm Valuation POW - for blackboard - GenaTech Income...

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Firm Valuation Practice Test Note: this problem is nearly identical to the Laughers problem from class. Refer to your notes as you work through this exercise. Firm Valuation: Use the following information to calculate the value of GenaTech using both the FCFF and FCFE approach: GenaTech: The firm’s beta is 1.7 The MRP is 6.6% and the T-bill rate is 4% GenaTech’s debt trades at 90% of par value The debt is composed of bonds with 10 years to maturity and a 9% coupon rate The firm has 1000 shares of stock outstanding The firm’s stock is trading at \$10 per share Tax rate = 40% ; payout ratio is expected to be 60% Firm will grow forever at sustainable growth rate
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Unformatted text preview: GenaTech Income Statement Net sales \$19,610 • Less: Cost of goods sold 9,610 • Less: operating expense 5,900 • Less: Depreciation 1,000 • Earnings before interest and taxes 3,100 • Less: Interest paid 1,100 • Taxable Income \$2,000 • Less: Taxes 800 • Net income \$ 1,200 GenaTech Balance Sheet 20x1 20x2 20x1 20x2 • Cash \$310 \$405 A/P \$ 2,720 \$ 2,570 • A/ rec. 3,640 3,055 N/P 100 • Inv 4,275 3,850 T. CL \$ 2,820 \$ 2,570 • T. CA \$ 8,225 \$7,310 LTD 7,875 8,100 • FAssets 8,960 10,670 CS 5,000 5,250 RE 1,490 2060 T. assets \$17,185 \$17980 Total \$17,185 \$17980...
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